The coronavirus pandemic is uncovering new risk in the global supply chain for lithium-ion batteries as countries that are pivotal in producing lithium and other metals needed for battery manufacturing roll out restrictions in a bid to control the spread of the virus.
Benchmark Mineral Intelligence, an information provider specializing in the lithium-ion battery sector, wrote in a recent report that the coronavirus outbreak has led to a logistical slowdown throughout the supply chain, stretching around the world.
In Australia, a major producer of lithium, the Association of Mining and Exploration Companies warned members of stringent interstate travel restrictions. In South America, Chile has implemented a national curfew, and parts of Santiago are in quarantine, while Argentina has a countrywide quarantine. In Africa, cobalt supply disruptions could occur due to border and port closures in South Africa in tandem with a lockdown in the cobalt-producing Democratic Republic of Congo.
Thus far, no significant supply shortages of battery raw material or anode and cathode material have been reported, largely because of oversupply from 2019, according to Benchmark. However, transportation bans and delays in China are raising concerns about raw materials shipments and the ability to deliver finished products to customers.
Upstream mining companies have begun alerting investors about how this could hit top and bottom lines. Major lithium producers Sociedad Quimica y Minera de Chile SA and Albemarle Corp. have flagged the financial repercussions. Albemarle told investors in February that it expected adjusted EBITDA to fall between 20% and 25% year over year in the first quarter and between 15% and 20% year over year in the first half, in large part because of virus-related logistical constraints.
During a March 24 investor fireside chat, Albemarle CEO Luke Kissam said the company was struggling to complete shipments of bromine due by the end of March. "It's not the orders and it's not the production, it's [about] can we get it shipped? Can we get the vessels? Can we get the containers?" Kissam said. "It's not a 2020 issue, it's a first-quarter issue, because I've got until the 31st to get it all done and I'm not sure we will." In an April 1 email to S&P Global Market Intelligence, an Albemarle spokesperson said the company did not have further updates on the status of the shipments.
The pressures felt by companies in the battery supply chain during the pandemic are not necessarily confined to their industry. However, observers said they offer insight into how the electric vehicle, battery storage and consumer technology sectors may need to mitigate expanding risks associated with transporting materials across long distances during and after the pandemic.
Emily Hersh, an Argentina-based managing partner of mining and energy-focused DCDB Research, said in an interview that while some governments, such as Argentina's, have designated mining sectors as essential, travel restrictions for individuals are another complication, even within countries.
"Physically moving things from place to place is going to slow down," Hersh said. "I think that across the world, logistics are going to get slower," adding that companies will likely start considering how to tighten supply chains so different parts are physically closer. "This changes the game on international logistics," Hersh said.
Mining companies in the battery supply chain will have difficulty making timely shipments during the pandemic, and some will "probably" declare force majeure on supply contracts, citing the coronavirus, according to Bob Stall, U.S. metals and mining leader for EY.
Stall said the pandemic could change decades of corporate thought on the risks associated with a globalized supply chain given today's transportation disruptions. As a result, trends such as automakers localizing battery manufacturing to their EV assembly plants could accelerate.
"Is COVID a six-month, 12-month or 18-month recovery? I think that's going to depend on the part of the world you're in. But the problem is we're a global economy," Stall said. "[A] supply chain for the last 20 years has gone to the lowest cost denominator, whoever was the lowest cost. … I think those dynamics are going to change."
The news is forwarded from S&P Global Market Intelligence by Jacob Holzman:
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