A ‘grand challenge’ launched by Joe Biden’s government in late 2021 is intended to encourage production of 3 billion gallons of SAF by 2030, and then increasing production tenfold to 35 billion gallons over the next two decades.

However, the research suggests that the country only has feedstock capacity to produce 21.7 billion gallons of theoretical SAF production, but only 12.2 billion gallons would come from biomass sources deemed to be sustainable.

The report defined sustainable biomass as any feedstock “without adverse market and environmental consequences.”

Examining the 2030 target of 3 billion gallons through four low-risk to high-risk feedstock and technology scenarios, the report determined that under all four scenarios the target was feasible.

At the lowest risk end – where technology already exists and supply is already being produced – ICCT estimated that production is likely to reach just over 3 billion gallons by 2030.

Around 40% of that output would reflect waste-based hydroprocessed esters and fatty acids (HEFA) with the balance coming from second-generation cellulosic production that typically uses non-food parts of plants or municipal city waste.

A high-risk production scenario, using waste and crop-based HEFA, second generation cellulosic fuels and conventional alcohol-to-jet (AtJ) technologies could see production ramp up to just short of 7 billion gallons by 2030, according to the report.

However, the dramatic ramp up in mandates to 35 billion gallons would likely be out of the reach of all forms of US feedstocks and would fall significantly short of target when non-sustainable feedstocks are exclusively deployed.

“In total, we find that the United States has approximately 21.7 billion gallons of theoretical SAF production from available biomass, but only 12.2 billion gallons of that is from sustainably available biomass,” the report said.

The report also noted that the current tax incentives, also introduced by the Biden administration to encourage investment in SAF production, only run out to 2027.

“Without a long-term price signal, SAF developers will lack sufficient incentive to invest in projects from less-tested, advanced fuel pathways,” the report warned, concluding that technology delays will likely blunt early production potential.

Pathways reliant upon HEFA production – an advanced form of renewable diesel – will be highly resource constrained, while AtJ pathways are likely to be expensively prohibitive in the near term.

Available resources and sustainability

In feedstock terms, the two biggest available resources – corn grain and soybean oil – will both largely fall short of the threshold required to be deemed sustainable, with both failing to meet the 50% life cycle GHG reductions that are required under the main compliance scheme, CORSIA.

When pushing on from the 2030 target, the report calculated the biggest single contributor to the SAF production pool stood to be corn grain ethanol, with 43.9 million tonneds of feedstock likely to be able to deliver around 6.9 billion gallons of SAF, at a conversion factor of just under 50%.

However, that would equate to virtually the entire supply of US corn ethanol currently heading into the road fuel mix, while the second place feedstock – soy oil – likely to be able to contribute a maximum 15.3 million tonnes at a 100% crush rate

That would yield 2.67 billion gallons of SAF, but both would find it difficult to contribute under current GHG reduction compliance requirements.

Of the feedstocks that are deemed to be sustainable, agricultural residues could contribute 161.1 million tonnes of feedstock and 4.88 billion gallons of SAF, while next best option was energy crops, that could produce 2.72 billion gallons of SAF from 89.7 million tonnes of feedstock.

Animal fats were identified as the most productive feedstock, with 500,000 tonnes of feedstock resulting in 420 million gallons of SAF, followed by corn oil where 700,000 tonnes of feedstock could produce 370 million gallons.

“Approaching the long-term SAF target would require substantial diversion of feedstock from other economic sectors,” the report notes, and called for incentives to be “extended and expanded” post-2030.

“There is insufficient biomass to meet the long-term 2050 target… the current set of policies in place are insufficient to expand SAF deployment beyond 3 billion gallons,” the ICCT said.

The report tap into the mounting concerns around the ambitious SAF mandates that both the US and the European Union have set out as they attempt to decarbonise the hard-to-abate aviation section.

With other parts of the world also looking at their waste-based and vegetable oil feedstock slate, and competition for feedstocks intensifying, meeting these targets will require significant investment and securing of relevant feedstocks.

The EU is looking to ensure 70% of its entire aviation supply uses SAF by 2050, up from 0.03% as of 2020.

View our feedstock prices

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“The political agreement between the European Parliament and the Council includes that the list of critical and strategic raw materials will now become part of European Union law, and adds aluminium and synthetic graphite to the list,” the EC’s spokesperson told Fastmarkets on Tuesday.

“These raw materials have been identified given their strategic importance for green, digital, defence and space sectors and their forecasted increase in demand that will exceed the foreseeable supply,” the spokesperson added.

The European Carbon and Graphite Association (ECGA), which represents the continent’s carbon and graphite industry in Brussels, has lobbied for synthetic graphite to join natural graphite in the CRMA.

“We have been actively advocating for the recognition of synthetic graphite’s significance. Looking ahead, we are committed to collaborating with EU institutions and industry stakeholders to foster innovation, sustainable practices, and the development of a robust European graphite industry,” Corina Hebestreit, secretary general of the ECGA, told Fastmarkets on Tuesday.

Some members, while welcoming the move, have called for additional steps to develop the sector.

“Europe must adopt a clearer stance, akin to the regulatory protections and incentives found in North America and certain Asian countries, to truly secure local production of synthetic graphite,” Burkhard Straube, CEO of anode material producer Vianode, told Fastmarkets on Thursday.

Graphite is used in the batteries of electric vehicles (EVs) and at the moment is mostly processed into active anode material in China.

“The increasing demands of the EV and battery industry for sustainable, fast-charging, and long-range materials make synthetic graphite indispensable,” Straube said. “Europe needs to act decisively to foster local production that meets these stringent requirements and supports the green transition.”

The EU has lagged behind so far in its response to China’s dominance of the graphite supply market but this development will support the sector in Europe, according to Fastmarkets research analyst Georgi Georgiev.

Recent investment in China’s synthetic graphite production has seen that material take market share from natural graphite, which in turn has faced a gloomy period of extended bearish demand.

“We expect graphite demand in the European Union to exceed 500,000 tonnes by 2030 from the battery sector alone and half of this demand will be for synthetic graphite. Therefore, including synthetic graphite in the CRMA is an important step toward the development of a localized supply chain and reduce the EU’s dependency on imports of this critical raw material,” Georgiev said on Friday.

Sustainability drive

Inclusion in the CRMA aims to ensure the EU’s access to a secure, diversified, affordable supply of critical raw materials that are also more sustainable, the EC’s spokesperson said.

European producers of synthetic graphite have sought to significantly lower their carbon footprint in comparison to equivalent material produced in China, which relies on energy-intensive Acheson furnaces.

“Europe will therefore push for much more virtuous technology routes, based on advanced and innovative processes, which are able to reach CO2 footprints lower than 5kg CO2 per kg of battery anode material,” Laure Latour, spokesperson for carbon product producer Tokai Cobex Savoie, told Fastmarkets on Friday.

The inclusion of synthetic graphite into CRMA means Europe should recycle 25% and process 40% of its annual synthetic graphite needs by 2030.

“Setting goals for European processing and recycling of synthetic graphite is a step in the right direction, but they must be backed by substantial action and support,” Straube said. “Vianode is committed to playing a key role in establishing large-scale synthetic graphite production facilities in Europe and North America by 2030.”

But it will require further developments if these ambitious recycling and processing targets are to be realized.

“It requires robust and supportive framework conditions. Our recycling process for graphite anode materials shows promise, but scaling it successfully depends on Europe establishing an attractive and competitive environment,” Straube said.

The current low prices of graphite, availability of scrap and limited application for recycled material has hindered the development of a recycling sector, and also challenges meeting the 25% recycling goal, according to Latour.

“The recycling processes will also need to be adapted to take into account graphite recycling, where initially the focus was on nickel, cobalt and lithium,” she said. “In addition, graphite recycling outputs will have to be opened to applications other than electric vehicles to ensure that this recycling loop creates value for the recycling industry.”

Calls for legislative, regulatory overhaul

The addition of synthetic graphite to the CRMA also means the EC and member states identifying strategic projects that would benefit from more efficient permitting, according to Latour and Straube.

“The real test however lies in Europe’s willingness to overhaul its legislative and regulatory framework to make it as favorable to synthetic graphite production as the Inflation Reduction Act has done in North America,” Straube said. “Europe must create a competitive, supportive environment to not just attract, but also sustain and grow the synthetic graphite industry.”

Permitting is likely to become increasingly focused on technological developments to drive down carbon dioxide footprints of plans, according to Latour.

“The EC and member countries will take some more information on processes and the technological route before authorizing permits to make sure that energy performance and material yields are state of the art, in order to ensure the lowest CO2 footprint by process design, not relying only on low CO2 electricity grids,” she said.

As well, automakers and battery manufacturers on the continent will need to support their EU raw material suppliers if the synthetic graphite supply chain in Europe is to catch up with China’s, Latour said.

The political agreement between by the EC and the Council for the amendment to the CRMA is now subject to formal approval process.

The EC’s news follows China’s recent decision to impose export controls on several synthetic and natural graphite products.

China’s imposition of export controls has heightened the need for Europe to look closely at the resilience and diversification of its graphite supply chain, which at present is highly dependent on China, according to sources.

And came it in wake of ECGA launching a European strategic partnership to develop a sustainable and competitive supply chain for the domestic supply of carbon and graphite.

Understand the dynamics of the graphite market

Keep up with the latest news, market intelligence and trends in the graphite market when you visit our dedicated graphite market page.

Get an in-depth, 10-year view into where and when graphite supply will come online with our graphite long-term forecast.

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China’s target of choice – graphite – is also unsurprising. While the US and EU have focused primarily on securing cathode active material supplies in recent years, focus on anode active material supply has been lacking, a vulnerability that Fastmarkets has highlighted repeatedly. The lack of focus by non-Chinese markets on graphite has been a strategic error. Ex-China investors have largely ignored graphite because it represents only 10% of lithium-ion battery costs, however, graphite comprises approximately 50% of the weight of the battery, rendering it critical in the lithium-ion battery raw materials supply chain. China is exposing this oversight and resulting weakness.

While fledgling ex-China graphite projects have largely struggled to secure adequate investment and are struggling with delays and extended material qualification times, China has moved to increase its dominance in graphite supply over the past year, particularly in synthetic graphite supply. China is moving both to expose EU and US vulnerability in graphite supply and to expose ex-China’s direct and indirect dependence on Chinese graphite. While US automakers engage in joint ventures with South Korean and Japanese battery makers, which are free trade agreement partners, both South Korea and Japan are also largely dependent on Chinese graphite production for their active anode material.

In our view, Chinese actions will also expose flaws in the US IRA’s ambitious targets for local content values in both battery components, including anodes, and critical minerals, including graphite, in the coming years. We have doubts about the feasibility of these initiatives to the extent proposed and in the indicated time frame. Without a dramatic change in current graphite market conditions, the acceptance of graphite anode material that has been at least partially processed in China, or a significant pullback in US EV production targets, we remain concerned that the targets will not be achieved.

We maintain the view that diversification in graphite supply sourcing away from China is only achievable with government intervention, and it now appears that it may be the Chinese government that, in fact, forces other governments to act on graphite.

China’s action on graphite export controls may be just what the market needs to spur global graphite prices and investment forward. Clearly, in the near term, we expect the announcement to trigger a much-needed reversal in graphite pricing, benefiting Chinese producers initially, and probably responsible for China’s reasoning in acting now. Chinese graphite prices have been in a downward spiral for the past year, with prices at or below production costs, and upward impetus is needed to protect the domestic supply chain.

Triggered by the renewed sense of urgency, demand for Chinese graphite exports will surge in the coming weeks, with consumers in South Korea, Japan, the US and Europe expected to seek to secure material before export regulations go into effect on December 1. Pricing gains are forecast to continue into December/January reflecting both stockpiling activity and production cutbacks during the Chinese winter months. Higher prices and a renewed sense of panic regarding future graphite supply availability should encourage increased investment and interest in graphite projects, which would in turn aid the US and EU with achieving their goals of localization of supply and diversification of supply away from the current heavy dependence on China.

For now, Fastmarkets’ assessments of graphite prices are unchanged, with the latest pricing session occurring the day before the Chinese government’s announcement on the new temporary export controls. Fastmarkets assessed graphite flake 94% C, -100 mesh, fob China at $530-604 per tonne and graphite spherical 99.95% C, 15 microns, fob China at $2,000-2,200 per tonne, both unchanged from the prior week. Fastmarkets assessed graphite flake 94% C, -100 mesh, cif Europe at $600-620 per tonne, also stable from the previous week. Given the latest market developments, we expect to see prices trend stable to higher in the coming weeks, in line with our previous forecasts.

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In a busy morning for EU-policy makers, the European Council also confirmed it would be adopting an expansion in sustainable aviation fuel (SAF) mandates, the Council committed EU member states to decarbonising transport, buildings, industry and both heating and cooling.

The ambitious reworking of the mainstay policy that has underpinned European energy transition since 2009 ran into controversy during discussions, as the mounting cost of energy in general – and sustainable energy in particular – brought challenges.

The final agreement represented a slight watering down of earlier proposals, with the European Union’s twin legislative chambers the Parliament and the Council cooperating to reach the 42.5% renewable contribution by 2030.

However, the slightly more ambitious 45% target that had been sought prior to discussions was agreed as a 2.5% “indicative top up.”

Spain’s minister for ecological transition, Teresa Ribera, described the adoption as “a great achievement” under the broader ´Fit for 55´package – a proposal to ensure a 55% reduction in emissions by 2030.

While the target will encompass every element of EU energy use, the transport sector is expected to shoulder the brunt of the legislative changes, with member states having to choose between two key policies governing transport emissions.

States have the option to either set a binding minimum target of reducing greenhouse gas (GHG) intensity by 14.5%, or a binding share of at least 29% renewables within the final consumption of energy in the transport sector.

Alongside those options, the new rules also set out a binding sub-target of 5.5% spanning use of both advanced biofuels and largely hydrogen-based renewable fuels of non-biological origin (RFNBOs).

Under industry, the legislation prompts an expectation that 42% of all hydrogen in use should be produced from RFNBOs by 2030, rising to 60% by 2035.

Domestic heating and cooling will be subject to an increased renewable target that mandates year-on-year increases of 0.8 percentage points through to 2026, and then rises to 1.1 point through to 2030, and all new buildings are expected to set a target of 49% renewable energy share.

The legislation also makes allowances for the fast-tracking of approvals around construction of renewable energy-related projects and the creation of ‘acceleration areas’.

Following formal adoption by the Council, the legislation will now be published in the EU’s official journal in the next few weeks.

From there, the legislation passes into law 20 days after publication, and member states must transpose the targets into national legislation within 18 months.

The post EC signs off on RED revamp, targets 29% renewable fuel contribution appeared first on Fastmarkets.

CBAM declarations and certificates

The CBAM transitional period began on October 1. Buyers of imported goods will now have to submit CBAM declarations for the fourth quarter of 2023 by January 31, 2024.

The CBAM declaration should contain the following: total quantity of each type of goods imported in the previous calendar year, total embedded emissions associated with the imported goods, total number of CBAM certificates to be transferred for surrender and copies of verification reports issued by the accredited verifier.

CBAM certificates must be submitted by buyers of imported steel by May 31, 2024, and the number of those certificates should correspond to the level of declared emissions.

The number of CBAM certificates at the end of each quarter should be equal to at least 80% of the embedded emissions of imported goods since the beginning of the year.

The price of the certificates will be calculated by the European Commission on a weekly basis, based on the average price of the closing EU Emission Trading System (ETS) carbon dioxide (CO2) allowances for each week.

Steel market participants expressed concerns over the unpredictability of carbon emissions costs, and lack of clarity on how many certificates will be needed for each importer to cover the purchased goods.

“In theory we could sell unused [CBAM] certificates afterwards, but the price for carbon allowances under EU ETS is highly volatile, and the fact that the buyer doesn’t know exactly how many certificates will be needed makes importing even more risky and will push costs up,” a trading source said.

“Smaller distributors, steel service centers, simply wouldn’t be able to afford importing steel. So they will need to switch to domestic suppliers and maybe purchase imported steel [from] big companies who are able to hedge risks,” a second trading source in Europe said.

Buyers to rely on emissions declarations or use default values

Another concern for steel importers is the inability to check the accuracy of CO2 emissions information for purchased goods provided by sellers.

“In the transitional period, that’s quite obvious that the quality of the information that’s going to be reported in CBAM throughout the first three to five reporting periods is going to be abysmal and might have nothing in common with the actual emissions,” Daniel Maryjosz, manager at PwC, said during a presentation at Euometal’s Nordics meeting.

During the transitional phase of CBAM (until December 31, 2025), the Commission is likely to overlook some inaccuracies, and some simplifications are likely to be applied. From the start of the final implementation period (January 1, 2026), European buyers will have two main options to verify the CO2 emissions content in purchased goods.

The first option is for information in each CBAM declaration to be audited by an entity called a “verifier.” To achieve that, new entities will need to be set up, Fastmarkets understands.

“The new branch of entities is going to be launched once the transitional period ends. New entities are going to verify every single CBAM declaration that’s going to be submitted,” Maryjosz said.

Non-EU producers will be able to register their installations (steelmaking capacities in case of steel goods) with the CBAM authority, that’s going to be set up at the Commission level. Once that installation is audited, verified and accredited by the Commission’s authority, the supplier will not have to do it again.

“Basically, the CBAM declarant that purchased goods [from a] verified producer will not have to verify the [CO2 emissions] from that specific installation again,” Maryjosz said.

The second option is if the supplier is unable to provide information on the CO2 emissions in goods sold into the EU. Buyers will be forced to use the default CO2 values the Commission reports. Those values will likely not be clear at the point of purchasing imported goods, which poses a major risk for European buyers.

Another potential problem with the default CO2 values is that they could be defined at much higher levels than the actual emission values from the specific countries, according to sources familiar with the matter.

“For instance, 1 tonne of blast furnace-produced steel from China has 2-2.1 tonnes of CO2 emissions. However, if the supplier is not able to provide any report or documentation supporting this information, the Commission is going to use the default values set at 3 tonnes of CO2 per 1 tonne of steel,” Maryjosz said.

That means that instead of purchasing two carbon certificates the buyer would need to purchase three certificates to cover the emissions.

It will be possible to use in CBAM declarations the information on the carbon emissions that are provided by institutions in non-EU countries, should they have any.

For example, if the steel supplier to the EU pays carbon tax in their home country, than this information can be taken from the reporting authority in that country. It would only be possible to do so without any supporting documentation until the end of 2024.

From 2025, the Commission is expected to set up a more or less unified process to get the information on carbon emissions from non-EU suppliers, or will settle those emissions using default values.

Risk of outsourcing high-value added goods outside the EU

For steel products, the EU already has a number of trade restrictions, including anti-dumping measures for certain products, safeguard measures, and now the CBAM.

And while steel imported into the EU to produce finished goods is subject to CBAM regulations, those same products – such as cars and white goods – can be imported directly without falling under the scope of CBAM.

Steel market participants are therefore worried about the leakage of high-value added production outside the over-regulated European market.

“Instead of bringing the steel coil from Asia and processing it in the EU, we buy the ready tailor-made steel structure without quota, without the anti-dumping and CBAM. That means that all this added value for Europe is gone,” Fernando Espada, president of Eurometal, said.

The CBAM was initially designed to offset the additional costs the EU mills have to bear because of the fact that they need to buy CO2 allowances and prevent carbon leakage, while products built with CBAM-covered goods were not really taken into account.

That issue is not currently being addressed by the Commission.

To keep up with the green steel discussion and to follow the critical developments in green steel pricing and low carbon steel production, visit our Green Steel Spotlight page.

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The sector has been a major investor in renewable biofuels – particularly biodiesel and comes as the European Union prepares to revisit some of the guidelines surrounding permissible feedstocks amid a major push to boost production of sustainable aviation fuels (SAF).

In a key shift for the shipping sector, the European Union’s FuelEU Maritime regulation and the International Maritime Organization’s (IMO) decarbonization agenda have set the stage for the next ten years, Ahrens acknowledged and “now it is time for action for the shipping sector.”

FuelEU Maritime is a new European regulation that will go into effect in 2025 and will require all ships carrying passengers or cargo to minimize the yearly average well-to-wake GHG intensity of energy used on board.

According to the International Maritime Organization (IMO), shipping is responsible for 2.9% of global GHG emissions.

The primary GHG intensity reduction targets are set to climb incrementally from 2% in 2025 to 80% in 2050, according to Ahrens – mirroring a similar requirement to cut emissions in the aviation space.

But, under Annex V of the Renewable Energy Directive (REDII), waste-based and advanced biodiesel achieve the “largest GHG savings” of all renewable transport fuels, Ahren’s said, with up to 90% emissions savings compared to fossil fuels.

As such, that has driven investment in biodiesels across the sector meaning “for obligated parties that need to reduce their emissions drastically today, biofuels could be a strategic tool in their fuel mix,” a move that has led the group to offer sustainable options in over 80 ports worldwide.

Demand for biofuels has increased in recent years since they can be combined with traditional fuel oils to provide an immediate answer to EU responsibilities and IMO requirements such as the Carbon Intensity Indicator (CII), which is a “decarbonization solution” for shipowners as it can be achieved without the need for large-scale capital investments.

Feedstock supply still a challenge

However, scaling up of biofuel volumes will require a broader approach to feedstock supply, an opportunity that will come with the release of the amended Annex IX of RED later this year, in which a series of additional feedstocks will be introduced for the manufacture of waste-derived biofuels.

The call to ensure waste-based and advanced biodiesel has a “key role to play to decarbonize the maritime transport sector”, however, that call comes as Bunker Fuel Group faces competition from mounting SAF mandates, which could drain feedstocks away from the marine and truck sector and can put at risk some of the investments that have been made.

Earlier this month, Japanese shipping firm Mitsui O.S.K. Lines (MOL) signed a memorandum of understanding (MOU) with Royal Dutch Shell to develop green bunker fuels.

The two companies said they would jointly focus on advancing “alternative maritime solutions” and the management of carbon emissions.

Meanwhile, in August the Gibraltar-based marine fuel supplier Peninsula confirmed that it had signed its first biofuel supply deal with Japanese shipping firm Kawasaki Kisen Kaisha, which at that time had already delivered 700 tonnes of used cooking oil-based methyl ester (UCOME)-based B24 marine biofuel to K Line’s oceangoing bulk vessel the M/V Cape Amal in Hong Kong on August 11.

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The rollout of high-manganese nickel-cobalt-manganese (NCM) battery chemistries is expected to particularly increase demand and regional market deficits could even emerge sooner than 2028, in particular in the US, Searle said.

Despite higher input costs for non-Chinese manganese sulfate, the introduction of legislation such as the Inflation Reduction Act (IRA) and the EU’s battery directive has provided demand for non-Chinese production.

“IRA regulations in the US aimed at reducing reliance on China in favor of domestic and FTA-linked critical mineral supply will significantly tighten the supply pool for US battery producers in the coming years,” Searle said.

“Significant manganese sulfate processing expansion will be required outside of China to ensure EVs qualify for the full tax credit,” he added.

Supply-demand expectations for battery-grade manganese sulfate, sometimes described as the “forgotten battery raw material,” will be an important topic of discussion at next week’s European Battery Raw Materials Conference, with a presentation and roundtable dedicated to potential future market developments.

Fastmarkets calculates that China was responsible for 89% of manganese sulfate production in 2022.

As with the majority of other battery raw materials whose production is overwhelmingly concentrated in China, geopolitical tensions and new legislative drives towards securing supply chains have seen a crop of new manganese sulfate projects emerge outside of China.

But despite progress, a number of questions loom over the new producers and Western market, relating not only to how demand and supply might shift, but the potential for major price volatility.

Renewed concerns about the environmental, social and governance standards and transparency of Chinese production have proved a boon to non-Chinese producers.

Questions also persist around the effect of the emergence of new battery chemistries such as lithium-manganese-iron phosphate (LMFP) batteries.

“We are seeing significant attention and investment in LMFP technologies with a view to improve the chemistry that holds the greatest market share in the Chinese market,” Searle said in July.

Another potential future development could be the commercial establishment of high lithium, manganese (HLM) cathode active materials (CAM).

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The post Manganese sulfate market to switch to deficit by 2028 despite new capacity | European Battery Raw Materials 2023 appeared first on Fastmarkets.

Reaching net-zero emissions will require massive amounts of critical raw materials, which are currently used in everything from solar panels to electric vehicles (EVs). For EVs, diversifying battery manufacturing and critical raw materials supplies will be key to ensuring secure and sustainable supply chains.

Electric vehicle markets are still showing great strength across the board, breaking new records as sales surge. A total of 14% of all new cars sold were electric in 2022, up from around 9% in 2021 and less than 5% in 2020.

Despite surging EV sales, the transition has really only just begun. This means that demand should continue to soar on the back of subsidies and future phase-out targets and regulations for internal combustion engine (ICE) vehicles. When total costs of EV ownership are on a par with those of ICE vehicles (and even begin to drop below them) in the second half of the decade, we can expect an extra upswing.

China, the EU and the US are the leading markets, with electric cars set to surge to 60% of total car sales across these three economies by 2030 – that’s if supply is able to keep up.

As the demand for EVs rises rapidly, so does the demand for the minerals inside their batteries.

Squeezed supply chains and looming shortages of critical metals which are key for battery manufacturing present a major risk for the energy transition as we head towards 2030. Lagging investments in mining may also add another challenge to the mix as we begin to see the supply-demand balance grow increasingly fragile.

Surging battery metal prices pose challenges to the EV industry

The rapid increase in electric vehicle sales during the Covid-19 pandemic has exacerbated concerns over China’s dominance in lithium battery supply chains. Meanwhile, the ongoing war in Ukraine has pushed prices of raw materials – including cobalt, lithium, and nickel – to record highs.

The dependence on specific suppliers is not the only concern. Batteries make up a big part of an EV’s total cost and typically account for 30% to 40% of their value, but this proportion increases with larger battery sizes.
Rising demand for EVs amid tightening supply chains has also pushed prices of battery materials (including cobalt and lithium prices) to multi-year highs. This impacts prices, which in turn makes consumers more hesitant to make the shift to electric vehicles.
While nickel and cobalt prices have come down in the first half of 2023, they are still higher than they have been in previous years.

EU’s current efforts to strengthen EV battery supply chains

Europe is currently pushing hard to develop its battery supply chain, but this takes time and sourcing dependencies remain.

The EU’s Critical Raw Materials Act is the bloc’s attempt to secure supply chains and boost European autonomy to ensure the EU has access to materials needed to meet the bloc’s target of moving to net-zero greenhouse gas emissions by 2050.

Europe is responsible for more than one-quarter of global EV assembly, but it is home to very little of the supply chain apart from cobalt processing at 20%.

As part of the Critical Raw Materials Act, the EU has set targets for the region to mine 10% of the critical raw materials it consumes, like lithium, cobalt, and rare earths, with recycling adding a further 15%, and increased processing to 40% of its needs by 2030.
Today, China processes almost 90% of rare earths and 60% of lithium. The EU said that no more than 65% of any key raw material should come from a single third country. The EU is almost entirely dependent on imports of these raw materials, particularly from China with 100% of the rare earths used for permanent magnets globally refined in China and 97% of the EU’s magnesium supply sourced from China.

Investment is key to combatting China’s crucial role in the EV supply chain. But even as the US and Europe continue to ramp up investment, China’s dominance in processing and production is set to continue to grow.

Rising trend of vertical integration of EV and battery production

With uncertainties from metal supply chains, some automakers – which have set EV sales targets – have been looking into expanding their businesses into mining in the hope of securing a long-term supply of raw materials. Earlier this year, General Motors (GM) announced that it had formed a joint venture with mining company Lithium Americas, which would give GM exclusive access to lithium from a mining site in Nevada, US.
In the coming few years, we are going to see more partnerships – not just trade partnerships, but strategic partnerships – made along the EV battery supply chain. The future of the EV industry is vertical, ‘mine-to-wheel’ collaboration. This means that early efforts of long-term planning and relationship building will become increasingly important.

Policy and politics will continue to play a role in EV supply chains

Policy and politics will play an increasingly large role in the future of EV supply chains. To secure battery metal supply, we expect to see countries and regions such as the US and EU forge new trade partnerships. We expect governments’ EV policies to focus more on batteries and metals, and we also expect EV companies to further partner up with battery manufacturers and mining companies. The sustainability of mining and battery manufacturing will affect company decisions in the long term, but its impact will be limited until there has been a huge uptake in EV adoption.

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The post Global electric vehicle supply chains struggle to keep up as demand continues to surge appeared first on Fastmarkets.

The USDA, in its Biofuels Annual Report, published on September 1, claims that Neste received virgin palm oil volumes from Indonesia, which it said were exported fraudulently as UCO via China.

Neste’s reaction

“Neste’s recent analyses of UCO received from China do not support the USDA’s assertions, hence the company believes that the reference to Neste in the USDA report is either a mistake or based on a misunderstanding,” Neste said in a statement on Friday, adding that the claims were “unsubstantiated.”

The biofuels producer added that it takes suspected fraud cases “seriously and investigates them accordingly.”

“In addition, the company continuously evaluates the quality and authenticity of the raw material volumes it receives, conducting thorough laboratory analyses of the samples of UCO volumes it receives to its terminals from China,” Neste said.

The producer said it would subsequently contact the appropriate authorities at the USDA to discuss and learn more about the assertions in the report.

UCO imports from China

The hit back from Neste comes several months after the European Commission said it was investigating a complaint from a member state about possible fraud relating to biofuel imports from China.

The Commission’s acknowledgment of the complaint and call for cooperation fully with the investigation follows the influx of Chinese-sourced waste-based biodiesel through the early part of this year that has swamped key European markets and was accused of harming domestic production of both waste-based and conventional biofuels – physical prices collapsed across the EU.

Trade sources in June told Fastmarkets Agriculture that domestic biodiesel production had “pumped up in China,” this year, splitting Chinese UCO flows between the export market and new domestic processing capacity.

A similar ramp-up in sophisticated renewable diesel (RD) capacity across the US means the country has been pulling more and more of China’s UCO flows in as a feedstock, cutting flows of the feedstock to the EU – but the US has limited use for the finished grade UCOME.

“The US doesn’t want it [UCOME], so half China’s UCO is heading to the US and the other half to Chinese production which is then being exported [as finished product],” the source said.

Neste meanwhile restarted RD production at the expanded part of its Singapore plant in early August.

The production line initially started up in April, increasing annual production capacity to 2.6 million tons (mt), of which up to 1 million mt was intended to be sustainable aviation fuel (SAF).

However, the facility was shut down in June due to unexpected equipment repairs, which the company said in July would affect RD and sustainable aviation fuel (SAF) sales volumes in the second half of 2023.

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At present, in the third quarter of 2023, nickel sulfate production and consumption are heavily weighted toward east Asia, with China being the largest market, followed by Japan and South Korea.

Sulfate can be produced by several different methods, from dissolution of nickel metal to the refinement of class 2 nickel products such as mixed hydroxide precipitate (MHP) or nickel matte.

Although producers of sulfate in China have almost entirely switched to the use of MHP or matte for sulfate production, many outside of China still use nickel metal dissolution.

This difference in production routes, as well as differences in consumer priorities in the West, have led to an increased divergence in prices for nickel sulfate.

Price divergence is not a new trend in the global nickel market, with many nickel products showing significant differences in price depending on region.

The most obvious reflection of this trend is in class 1 nickel metal products, which are typically priced as a premium to the London Metal Exchange nickel cash official price, which remains the benchmark for the global industry.

For nickel briquettes, Fastmarkets sees a significant spread between regions. On Tuesday August 29, Fastmarkets assessed the nickel min 99.8% briquette premium, cif Shanghai, at $0-130 per tonne. This compared with Europe, where Fastmarkets assessed the nickel briquette premium, in-whs Rotterdam, at $300-550 per tonne on the same day.

But both these premiums were dwarfed by premiums in the US, where Fastmarkets assessed the nickel briquette premium, delivered Midwest US, at 70-85 cents per lb, also on August 29.

Given the use of nickel briquettes for dissolution to produce nickel sulfate, this highlights where further gaps can emerge in the battery-grade nickel market.

More production

Although production and consumption of nickel sulfate within Europe is limited to a handful of market participants, this number is expected to grow significantly, with several key companies investing in the development of capacity within the region.

“Though the market is small today, it remains a key strategic area for us, with demand set to rise significantly,” one producer said.

In the inaugural publication of a new assessment, Fastmarkets calculated the nickel sulfate premium, in-whs Rotterdam, at $2,400 per tonne on Friday September 1.

This figure contrasted with CIF-basis premiums in East Asia, which are around $1,000 per tonne lower, Fastmarkets understands.

Fastmarkets assessed the weekly nickel sulfate premium, cif Japan and Korea, at $1,400 per tonne on September 1, unchanged since July 14.

Weaker nickel sulfate prices in the domestic Chinese market resulted in aggressive bids from consumers in the region, including a discount of as much as $1,500 per tonne, although no business was confirmed at such levels.

Market participants argued that the price gap between Europe and Asia is a natural feature, when considering the additional costs.

“Due to the small pool of domestic producers, consumers may turn to imports, in which case you have to factor-in the duties,” the producer told Fastmarkets.

Strong growth forecasts

Fastmarkets research currently forecasts that demand for electric vehicles will show compound annual growth of 12% over the next decade, taking demand to 790GWh in 2033 from the current 259GWh.

This would compare with a global forecast growth rate of 16% from 2023 to 2033.

Nickel sulfate is a key component in the cathodes of many lithium-ion batteries, particularly those used in electric vehicles.

Nickel is used in batteries to provide greater energy density, improving charging times as well as range, which often are key concerns for consumers in the European market.

At present, the lithium-ion battery sector represents around 10% of global nickel demand, although this is likely to increase to 25% within a decade, according to Fastmarkets research.

This expected growth will result in increased demand for battery raw materials from the region, particularly with governments seeking to encourage the localization of supply chains.

Battery-grade nickel was included in the list of strategic metals specified in the EU’s Critical Raw Materials Act (CRMA), alongside 19 other strategic raw materials.

As a result, the material is now subject to production targets in the EU to provide greater security of supply.

Keep up to date with the latest news and insights on our dedicated battery materials market page.

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