Insight Conversation: Benedikt Sobotka, Eurasian Resources Group

Eurasian Resources Group CEO Benedikt Sobotka, at the helm of a diversified mining group which has successfully entered the cobalt recycling space, talks to Diana Kinch, S&P Global Platts senior editor, EMEA Metals News, about the crucial role recycling will play in market dynamics as demand for metals grows in the energy transition.

Prices for metals, particularly energy transition metals such as lithium, cobalt, nickel, copper and aluminum, have risen remarkably in recent months. Demand has taken off post-COVID-19 and supplies are generally tight. What role can metals recycling play to balance the market?

Benedikt Sobotka

Metals prices may continue on a rising trend for around 15 years, because the recycling needed to supplement primary supplies will kick in on a major scale only at that time. Mainly primary metals will be absorbed into the system for the next 10 to 15 years, which is the expected lifespan of the current wave of electric vehicle batteries coming onto the market.

Recycling at present is more a collection problem than a price problem, but longer term there's enough material out there. Governments can be expected to introduce mandatory recycling schemes for batteries and electronic goods.

Are we seeing a new supercycle in metals?

Energy transition is a driving trend with all the ingredients of a new supercycle. Annual investments in decarbonization of $750 billion-$1 trillion globally are foreseen in coming decades in a bid to keep to Paris Agreement 1.5 degree Celsius global warming targets. This will boost demand for copper, aluminum, cobalt and other battery metals for renewable energy, transport and construction in the biggest purchase order in the history of the mining industry. The amounts are just staggering!

EV production is now really taking off. Will there be enough metal available at the right price to make all the batteries required? Can countries meet their EV roll-out targets?

EV sales more than doubled worldwide in 2021. ERG believes EVs should exceed 50% of total automotive sales in the largest markets, such as the US, by 2030, in stark contrast to most analysts' currently conservative forecasts of around 30%. Still, we don't believe there's any danger of nations not meeting their EV roll-out targets due to battery metals shortage.

New prices will stimulate new investments... but there's a lag. New mines can take 10 to 15 years to be brought on stream, particularly due to licensing issues. While lithium prices have recently skyrocketed there's still enough lithium around, and the incentive to produce or recycle becomes more prominent as the price goes up.

Your own recycling project has recently expanded. What are its future prospects?

ERG's Metalkol RTR recycling project in the Democratic Republic of Congo is reprocessing historic mine tailings of other miners in the area, and can already produce 21,000 mt/year of cobalt—sufficient for 3 million EV batteries—and around 100,000 mt/year copper. As there are more tailings in the region, more feed could later be processed in this facility, prolonging its current 15-year life.

Will we see market disruptions in 2022?

Short-term disruptions—because of the pandemic and price volatility—will persist in metals markets in 2022, against a backdrop dominated by China. Short-term market disruption will be driven by inflation, driving prices and by customers stocking up more than usual because they expect disruptions in supply chains. There will be external shocks we can't even predict yet.

What about metals prices this year? London Metal Exchange monthly January cash averages for major metals were all notably up over December: high grade aluminum at $3,002/mt (+$307); copper $ 9,774/mt (+$225); cobalt $70,202/mt (+$1,277) and nickel at $22,319/mt (+$2,254).

ERG forecasts 2022 could see the highest aluminum prices in over 30 years. We believe aluminum has strong potential to outperform other LME base metals in 2022, having again breached the important milestone of $3,000/mt at the start of this year. The market will remain in a sizable deficit for the second consecutive year, with visible inventories at the lowest level since the global financial crisis.

China's aluminum supply growth will be constrained by strict energy consumption controls and a slow ramp-up of idled smelting capacity. Accelerated decarbonization efforts and soaring energy prices are limiting capacity additions outside China, with further smelting capacity cuts in Europe possible. Around 700,000 mt, or 14%, of ex-Russia European smelting capacity has already been cut for these reasons, at a time of rising demand from construction, transport and packaging.

Cobalt's 119% price surge during 2021 shows the market is severely short of the blue metal. So far this year there are no discernible signs of any fundamental easing, with prices remaining on an upward trajectory as consumers fight to secure sparsely available spot units—a situation that will undoubtedly persist throughout 2022 and beyond.

In addition to growth in the gigafactory and EV sectors, the International Air Transport Association sees global air travel demand growing 52.5% on year in 2022. Boeing and Airbus have announced ambitious production targets for this year.

Should governments stockpile?

We believe governments should set up strategic metals stockpiles in the near future to avoid supply shocks, due to the geographic concentration of some raw materials supplies. Just look at what happened with semiconductors supplies. This turned into a global scramble! Some governments may still need to develop the skills to pick the right metals for their stockpiles.

What are the trends in global trade?

Global trade in metals is set to be regulated by regional carbon taxes as governments push for traceability to "green" their supply chains. This may occur in the near term.

Typically only large companies are able to certify full ESG-compliant material, which means automakers are increasingly approaching companies such as ERG for long-term supply contracts for cobalt, nickel and lithium. More than 70% of cobalt production now goes to the batteries sector, including for EVs, electronics or energy storage. The batteries sector takes an even higher percentage of lithium production. An increasing number of automakers want 10-year contracts. But we would not allocate more than 10% or 20% to one single customer, otherwise they will want multiples of what we can produce!

Metals prices continue to be set in China, by far the world's biggest consumer of any metal. Even though China's growth rate may be slowing compared to previous years, it's still all about China. We don't see China's demand falling. It's trying to achieve higher quality growth. Recent stricter enforcement of metals industry decarbonization in China, via curbing coal-powered primary aluminum production and energy usage in lithium and cobalt refining, are a shift that has impacted global market prices.