Nickel beats cobalt for long-term electric vehicle trends, says JPM

Examining the potential impact of the growing electric vehicle market on automotive, battery makers and mining companies, JPMorgan Cazenove tempered investor exuberance over lithium and cobalt, in favour of nickel and copper.

A top-down model taking in metals and mining teams and the global commodities research team to derive demand forecasts for battery materials, the pooled model showed an EV penetration rate of 7.7% in 2025, equivalent to or 8.4m battery EVs and plug-in hybrid EVs, which is pretty conservative compared to sell-side bank consensus that ranges between 10-14%.

JPM tempered enthusiasm on lithium and cobalt prices, but is more optimistic on the outlook for copper and nickel, with copper demand forecast to grow by around 845kt per year by 2025, offsetting structural decline in Chinese demand.

EV battery technology is seen transitioning to nickel, at expense of cobalt, as the higher energy density properties of nickel-lithium-ion batteries crosses over with supply chain challenges in cobalt to incentivise greater nickel loadings over time.

JPM does not expect supply tightness in lithium to persist later than 2018 and forecast a rising surplus until 2023, whereas in cobalt, new projects are seen leading to a surplus until at least 2022 before demand is expected to be impacted by substitution towards higher nickel loading.

China is a key reason JPM differs from the consensus, analysts said: "We forecast rapid growth of EVs, but wide regional dispersion tempers metals demand impact. Specifically, China is forecast to lift its EV share from 2.3% in 2017 to 12% by 2025, but its propensity for smaller battery packs with lower metals loadings, is likely to mean its rapid EV growth has a lower correlation to metals demand growth than non-China OEM manufacturers."

One of the most favourably exposed to these trends is Glencore, with about 43% of 2019 industrial EBITDA stems from nickel, copper, cobalt ~60%.

On the other side, platinum is seen falling victim to the secular EV trend as the consumer shifts away from diesel cars, in JPM's view, meaning Johannesburg-listed Anglo American Platinum’s "expensive valuation" therefore at risk of a structural de-rating.