by Benedikt Sobotka, CEO of Eurasian Resources Group, Co-Chair of the Global Battery Alliance.

Over the past couple of years, the drive towards electric vehicles has been relentless, with tens of billions of dollars committed to the electrification of new model offerings.

Automakers have faced two major hurdles. First, the irregular and often opaque implementation of government subsidies. Second, the question of how to transform traditional supply chains without facing challenges from politicians and unions.

Clarity around incentives may not yet be achieved, but governments appear eager to continue to promote the electrification of transportation. In China, the Ministry of Commerce recently outlined policy measures which include further consumer support to purchase electric vehicles. Among other things, the government is to promote vehicle sales in rural areas, update vehicle fleets in urban areas, and strengthen construction of electric vehicle charging infrastructure.

China’s State Grid recently announced the construction of 78,000 new charging points in 2020, and analysts estimate that about 200,000 public charging points and 400,000 private charging points could be constructed across China this year, with a total investment of US$ 1.4 billion. Crucially, China’s new energy vehicle purchase subsidies are expected to be extended for two years, although details have yet to be published.

In the European Union—the world’s second-largest electric vehicle market—meanwhile, governments continue to promote electric mobility and union-wide CO₂ emissions remain in place. For governments, it may make sense to use a crisis of these proportions to speed up a change which is already viewed as inevitable.

To automakers, meanwhile, the COVID19 lockdowns offer a rare opportunity to take a step back and re-evaluate long-term strategies. Although these are distressing times, it is also a chance to restructure supply chains and take more decisive steps towards embracing electric vehicles.

Certainly, there is a growing appetite for electric vehicles. Electric vehicle penetration rates are rising across many countries, with the UK reaching a penetration rate of 7% in March, Germany setting a new record at 9% and France reaching a plug-in electric vehicle penetration rate of 12%. The same pattern is evident in many other countries. In Portugal, Tesla’s Model 3 became the second bestselling car in March, just behind the Mercedes-Benz A-Class, and in Italy—one of the countries worst affected by the COVID-19 pandemic—electric vehicle sales are also at record high levels.

In summary, electric vehicles are weathering the COVID19 storm better than internal combustion engine vehicles. Governments and automakers should have noticed this too. Lithium-ion battery demand stands to benefit, and cobalt—as an integral part of these batteries—will be in high demand in coming years.

This sentiment is reflected in cobalt prices which, as of 20 April, continue to trade slightly higher than at the beginning of the year, unlike many other metals which have seen double digit price drops over the same period.

After a sharp fall in the second half of March, copper prices are back on an upward trend, trading above the US$5,000/t mark. This is mainly due to supply disruptions. While there is little doubt in our minds that the demand side of the market will be heavily reduced this year, the recent swathe of mine disruptions is quickly catching up; so fast in fact, that it is increasingly likely to counteract the losses on the demand side.

Typically, in a full year, around 5% of planned copper mine production is lost due to unforeseen disruptions. Around 1.8% of 2020 mine supply is expected to be lost from temporary coronavirus-related mine closures and cutbacks to date, equivalent to almost 400kt.

However, the crucial term here is “temporary”. If we were to assume that the aforementioned disruptions continue until the end of April, that would instead amount to a supply loss of 0.5Mt; until the end of May, the figure would rise to 0.9Mt. Overall, if we add in non-coronavirus-related disruptions and potential price-related shutdowns, an enormous mine supply loss of over 10% in 2020 may be expected—or more than 2Mt.

Another important supply trend that is quietly playing out in the background is scrap supply, which cumulatively accounts for around a third of global supply. Scrap discounts CIF China plummeted by almost 30%, indicating a huge shortage of scrap supply.

Completing the picture on the supply side is the current turmoil in logistics markets across the world. Increasingly, consumers are turning to metals exchange stocks to fill the shortfalls caused by delays in shipments or other restrictions. SHFE (Shanghai Futures Exchange) inventories in China dropped by 16% over the last 4 weeks.

As China’s lockdown restrictions are lifted and its economy gathers momentum during the seasonably strong Q2, stocks are likely to continue falling at an accelerated pace, and before long, copper prices will recover to pre-coronavirus levels of above US$6,000/t.

Benedikt Sobotka is CEO of Luxembourg-based Eurasian Resources Group (ERG), and Co-Chair of the Global Battery Alliance (GBA). ERG is the world’s largest high-carbon ferrochrome producer by chrome content and among the principal copper and cobalt suppliers.

In January, ERG was among 42 world-leading organizations at the WEF Davos meeting to agree on 10 key principles to foster a sustainable battery value chain—part of the GBA’s 2030 vision. The GBA is a public-private collaboration platform of 70 public and private sector organizations founded in 2017 that has become the global platform to help establish and collaborate on a sustainable battery value chain.