(L) Lithium★ Featured Topics​CommoditiesEnergy & Environment

Lithium has Lagged, but Secure Supply Won’t Last

Summary: Studies and sales figures show that demand remains strong for lithium and lithium-ion batteries in the long-term. However, even short-term supply and demand factors remain strong and should not be overlooked. Lithium pricing remains volatile and speculative with no futures contracts and miners are being acquired by battery producers, condensing the available supplies for the rest of the industry. Meanwhile, EV sales remain strong and production shows no signs of slowing.

A new study from commodity research  and consultancy firm, Roskill, projects demand from companies which produce lithium-ion batteries to power electric cars, laptops and other high-tech devices will grow from 46% of total lithium supplies last year to 83% by 2027. This is an especially significant finding because it follows a similar study from CRU Group, which estimated that lithium carbonate equivalent (LCE), the most widely traded of lithium products that goes into the cathodes of lithium-ion batteries used in electric cars, will more than triple between now and 2025. While use of lithium hydroxide (LiOH, a stronger lithium compound that can also be used for batteries) will become more prevalent over time, installing new battery grade capacity has proven complex and could materialize more slowly an expected.

Roskill sees lithium prices pulling back in 2019, and then experiencing stronger price growth after 2021, but the combined findings of both studies would suggest that an increasing share of demand from battery producers dependent on less energy-dense LCE are one factor that should keep prices strong, even in the short term.

As of now, there’s no actively-traded futures contracts tied to lithium yet, meaning investors are forced to rely on costly services that give price estimates. But even those prices aren’t very dependable, differing from the privately negotiated chemicals prices used by large miners and battery manufacturers, and subject to heavy volatility.

Further, the landscape of supply is changing rapidly with big-time battery producers like Tesla and China’s Tianqi Lithium buying up entire mines and mining companies. The latter recently paid more than $4 billion to become the second-largest shareholder in Sociedad Química y Minera (SQM), a Chilean mining company. The deal gives the company effective control over nearly half the current global production of lithium, a critical component in battery technology.  These moves to lock up already constrained supply have concerned the market so much that customers of Lithium giant Abermarle have begun pushing for longer supply contracts, of anywhere from 3-5 years to as long as 10 years, even with prices still very high.

The largest amount of growth in battery applications will be in electric vehicles. While some have speculated that electric vehicle (EV) production would slow if lithium prices pushed up the costs of batteries, that isn’t likely. Production of electric vehicles continues to accelerate and will be helped along with legislative incentive.

Global EV sales were up 54% in 2017 to about 3.1 million units. That number is forecasted by the IEA to reach 125 million by 2030. China’s aggressive tactics in locking up supply is reflective of its government’s initiative to have at least 20% of new car sales to be electric by 2025, and an even greater ambition to quintuple that number to a full 100% by 2030. 99% of the world’s 385,000 electric busses are already in China and the country is adding about 9,500 new EV busses every 5 weeks. Europe has taken a proactive stance on EVs as well. Although China fielded the world’s largest fleet of EVs in 2017 at 1.23 million units, Norway led the world in domestic market share with 39.2% of all automobile sales in the country being electric. The Norwegian government’s ambition is to have sales go 100% electric by 2025. France and Germany have also laid out legislation mandating deadlines for all car sales to be electric by 2030 and 2040, respectively. Even in Europe’s less vibrant EV markets, deliveries are set to increase to 354,000. Since these changes are government mandates, It is unlikely that production will slow due to the resource cost of lithium, which has been shown to have very little effect on the price of batteries anyway. A 300% increase in lithium cost, for instance, would only raise the price of batteries by 2%.

Back on the supply side, overestimations have been made before. As MRP previously highlighted, 2012 saw thirteen major mining companies from around the world plan to add over 200 ktpa (thousand tonnes per annum) of production by 2016. When 2016 arrived, however, the total amount of added lithium supply from these companies totaled only about 10% of that goal. Only one brine mining project and zero hard rock projects have been put into full production over the last two decades. And when done so, it’s been by the major lithium producers in just four countries – Chile, Argentina, China and Australia. This exposes something in the industry no one talks about; a lack of skilled personnel to get involved with mineralogy/metallurgy and the engineering of mining projects that many countries are not familiar with.

Pair that track record with a need for up to $12 billion in downstream investment in the industry and a coming decline in lithium intensity – the amount of lithium used per unit of energy the battery produces – that will require a shift to larger battery packs to give EVs the range that consumers demand, measurements of real future supply no longer seem very reliable.

MRP added Long Lithium to its list of themes on October 2, 2017. The Lithium and Battery Tech ETF (LIT) has declined 14% against the S&P 500’s gain of 7% over that period, but given the above, we believe lithium pricing and technology is set to rebound strongly. 

We’ve also summarized the following articles related to this topic…

 

Lithium: Lithium demand from battery makers to almost double by 2027

The outlook for lithium continues to shine, with demand from companies that produce batteries to power electric cars, laptops and other high-tech devices, expected to increase more than thirtyfold by 2027. While the next nine years will drain less than 1% of the reserves in the ground, battery makers will need more lithium to support their production, which will boost demand for the key metal almost 16% to reach 1 million tonnes.

Expected supply, however, is far from the astronomical figure forecast by the research firm, with Canada’s Bank of Montreal expecting between 80,000 and 91,500 tonnes of lithium coming from mines by 2025.

Roskill estimates that demand from lithium-ion battery manufacturers will grow from 46% last year to 83% by 2027. Use of lithium hydroxide, in turn, is also forecast to become more prevalent, increasing from 25% of lithium compounds used in rechargeable batteries in 2021 to 55% by 2027. The analysts expect the market for battery-grade lithium compounds to remain tight, however, as installing new battery grade capacity has proven complex and forecast demand growth is greatest for these products.

In terms of lithium prices, they are expected to peak in 2018, as greater supply availability of mined and refined lithium will enter the market in coming years, causing prices to briefly fall back in 2019, with a floor of $11,000/t battery grade lithium carbonate. MINING

 

Lithium: Lithium to remain cornerstone of EV battery technology

Lithium does not occur naturally in nature. Instead it is found in a variety of mineral salts which needs to be chemically processed to form the lithium compounds and chemicals required by industry. A number of lithium compounds are used by industry but it is lithium carbonate that is the most commonly used form of lithium, accounting for more than half of total demand. The lithium industry often expresses lithium production and trade in lithium carbonate equivalent (LCE) units.

If electric vehicles, which rely wholly or partly on electricity stored in batteries as their source of energy, revolutionize road transport in the way many expect, demand for the metal will rise exponentially. China will be at the forefront of this. China is already the world’s largest market for EVs, accounting for nearly half of global sales last year. China accounted for slightly more than half of total global production last year producing 123,000 tons LCE.

This increase in battery production will see a significant rise in demand for metals like cobalt, nickel and lithium. And regardless of the battery technology and the amount and proportions of other metals, the lithium intensity of batteries — the amount of lithium used per unit of energy the battery produces — remains more or less the same. Platts

 

Lithium: Italy Wants to Put a Million Electric Cars on the Road. Price: $10 Billion

The populist government in Italy, Europe’s most sluggish market for electric cars, has a big-bang plan to put 1 million of the vehicles on the nation’s roads. Getting anywhere near that target could cost the state $10 billion in incentives.

Italians last year bought just some 2,600 fully electric passenger vehicles, out of a total of about 2 million cars sold, and the number rises only to around 4,800 if plug-in hybrid models are included, according to the European Automobile Manufacturers Association. Fewer than 5,000 fully electric models are estimated to be on the country’s roads today.

To flip the script and go from being an electric car backwater to Europe’s biggest market, the Italian government would need to roll out incentives at least at the level of Norway’s, which could cost several billion euros, analysts say. Even that might not be enough. If it’s serious about the 1 million-car target, the government may need help from companies like state-controlled Enel SpA, Europe’s biggest utility, which plans to invest 100 million euros to 300 million euros to install up to 14,000 charging stations in Italy by 2022.

And Italian drivers already embracing alternatives to combustion engines could also help fuel an eventual migration toward electric. Fiat Chrysler SpA Chief Executive Officer Sergio Marchionne, a one-time EV skeptic, now says his company will invest 9 billion euros to develop electric cars by 2022. B

Leave a Reply