by Mike Halls, Publisher
The alleged US/Israeli bombing of the Saba Battery facility in Tehran on March 31 signalled that battery energy storage is as much at the heart of the conflict as the transit of oil through the Strait of Hormuz.
Saba is the largest battery manufacturer in Iran mostly known for automotive and industrial lead products. But it is closely linked with manufacturing lithium cells with Niru Battery, a subsidiary of Iran’s Defense Industries Organization — the core body responsible for making weapons and missiles — and makes power units for military systems.
Lithium ion or lithium polymer batteries are a key part of the guidance systems for Shahed attack drones and other ballistic missiles that can be aimed at tankers crossing the disputed part of the strait.
Destruction of the facility — and there are still no international verifications of the exact extent of its devastation — would potentially have an impact on drone activity. However, this may be marginal as most of the lithium cell batteries used are reckoned to have already been imported.
The global batteries and related materials sector is now set to feel the global supply chain strain from the log jam in the Strait of Hormuz.
The implications for the energy storage industry are vast as financial markets across the world decide whether the disruptions to renewable energy supply chains can be counterbalanced with a longer term move away from fossil fuels.
The vote, perhaps predictably, seems to have gone collectively to renewable technologies and those reliant on lithium batteries.
China’s leading battery manufacturers collectively added more than $70 billion in market capitalization in March with valuations of BYD up 22%, CATL up 19% and Sungrow, also by 19%.
By comparison at the same time oil and gas majors’ stock price, while benefiting from rising commodity prices, had climbed by far less. Shell was up 8%, Chevron 8%, ExxonMobil 5% and only BP making it into double figures with 15%.
Mostly the surge in lithium prices is predicated on an uptick in demand for EVs as higher petrol prices means that payback on the more expensive battery vehicle becomes shorter.
The conflict has already translated into a surge in EV enquiries from motorists, according to SNE Research. The agency predicts that global demand for EVs will accelerate by six months this year compared to previous forecasts, by one year in 2027, and by more than two years from 2028 onwards.
Overall, Japan, South Korea, and Taiwan, alongside China, are the biggest beneficiaries of any accelerated energy transition. This will increase investment in battery storage and BESS in particular, electric mobility, and renewable energy.
Fitch Ratings on March 25 said China’s dominance in the global manufacturing sector is likely to be further strengthened as a result of the Middle East conflict.
Prolonged oil and liquefied natural gas supply disruptions add upside by strengthening energy security-driven investment in renewables and BESS across energy-importing economies, Fitch said.
“This should support volume visibility and utilization for scale Chinese producers, who dominate the global LFP-cathode battery cell market and its supply chain.
Fitch said the main incremental overseas growth channel is likely to be solar-plus-BESS systems, particularly in emerging markets that rely on imported energy and have not yet secured stable, reliable electricity supply.
“The sharp decline in combined system costs in recent years strengthens the economic case versus fossil-based power generation, although raw material cost inflation may lead to some price rebound from this year,” it said.
International Lead Association executive director Andy Bush said, “We anticipate a growth in demand for battery energy storage systems because of the resilience and security they offer when there is such volatility affecting other energy supplies.”
Elsewhere, European Commission president Ursula von der Leyen said EU member states should take advantage of funds set aside by the bloc to invest in critical infrastructure including batteries, energy storage and grids and that the Commission is preparing to convene a major investment conference aimed at attracting more private cash into energy-related manufacturing and deployment.
There are other near-term supply chain dangers for the battery sector.
Maheswaran Doraiswamy, senior analyst at Exxon Mobil, said that elemental sulfur was likely to face a supply crisis. Thomas Yi, VP of China-based mining and metals conglomerate CIMM, said half of the globally traded seaborne sulfur must pass through the Strait of Hormuz, primarily sourced from refineries and gas processing plants in the Middle East. Supply disruptions would in turn have an impact on the price of sulfuric acid, a key component in lead batteries.
China plans to fully restrict exports of sulfuric acid starting in May, according to reports by Bloomberg and several international organizations, including the China-based Global Chemicals Network (ChemNet).
Sulfuric acid is a key ingredient in converting mined nickel into a usable material. High Pressure Acid Leach used in processing nickel laterites requires between 20 to 50 tonnes of the acid per ton of nickel produced.
Before the crisis, the global sulfuric acid market was already in a tight supply-demand balance. Looking at projected data from early 2024 to 2026, whether its spot prices in Chinese ports or FOB prices in Indonesia, the Baltic region, and the Middle East, the sulfur price curve shows a steep upward trend.
