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23 August, 2021updated 29 Oct 2021 11:19

Soaring demand, rising prices… what now for the lithium market?

As the Taliban's advance through lithium-rich Afghanistan raises questions about the metal's supply, demand and price, Investment Monitor assesses the global picture.

By Jason Mitchell

The ‘working from home’ revolution and the ‘green economic recovery’ happening in many countries since the Covid-19 pandemic struck has prompted a surge in demand for portable electronics and electric vehicles (EVs) and, in turn, for lithium, the metal needed to power their batteries.

The lithium-ion battery (Li-ion) is a family of rechargeable battery types in which lithium ions move from the negative electrode to the positive electrode during discharge and back when charging. They are the pioneering technology that has been successfully adopted as a power source for a wide range of applications – including portable electronic devices, electric tools, EVs and grid storage systems – after their commercialisation by Sony Corporation in 1991.

Strong demand for home computers, tablets and games consoles during Covid-19-related lockdowns throughout the world in 2020 helped consumer electronics trade revenues to reach $358.5bn globally – a jump of 7% over 2019 – according to Strategy Analytics, a technology consultancy. Shipments of home computers and tablets surged by 11% to 396 million units worldwide in 2020, while revenues ascended by 17% to $199bn, as millions of people needed new devices for working and learning from home. Games console revenues jumped by 18% to $11.9bn, driven by the launch of new consoles as well as lockdowns.

EV sales are estimated to have jumped 39% globally in 2020, according to Canalys, a market intelligence firm. In Europe, they surged by a staggering 127% year on year. Germany – Europe’s largest single national auto market – saw its share in EV sales surge to 13% in 2020, up from 3% in 2019. In China, total EV sales increased 11% year-on-year during 2020, reaching a total of 1.34 million vehicles, or 42% of the global market.

The jump in demand for consumer electronics and EVs have started to push up the price of lithium and has prompted many investors to consider new sources of the metal, including extraction from geothermal waters in Germany and the UK. It is also improving the economics of recycling lithium, which is likely to remain the main metal used in rechargeable batteries for many years to come.

Lithium is a critical metal

"In terms of the technology revolution in general, lithium is critical," says Jon Hykawy, president and director at Stormcrow Capital, a Canada-based critical materials research house. "It’s hard to imagine mobile computing in any form without lithium batteries because they have the highest energy density of any commercial cell type. Does anyone want to go back to charging their mobile phone four times a day when nickel metal-hydride technology was used?

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Does anyone want to go back to charging their mobile phone four times a day when nickel metal-hydride technology was used? Jon Hykawy, Stormcrow Capital

"As for the clean energy revolution, lithium is very important. You can look at sources of greenhouse gas emissions globally and transportation figures well up the list."

Sabrin Chowdhury, senior commodities analyst at advisory firm Fitch Solutions, agrees. "The role of lithium in the global economy and increasingly in the global green economy is highly crucial, as the lightest metal on the periodic table is essential in the manufacturing of Li-ion batteries," she says. "In fact, the backdrop for lithium – used mainly in Li-ion batteries for electrification in transportation and grid storage – is as bright as ever, as we are witnessing since 2020 a clear acceleration towards 'decarbonisation', which will be achieved to a great extent via the electrification of autos and energy storage."

The Covid-19 pandemic and lockdowns have led many people – in particular those in the West – to reassess their lifestyles. The reduction in commuting and in international travel has caused a drop in carbon emissions and many people would like to keep emissions down. The climate change debate – raging for many years – has gathered a new sense of urgency.

"Last year was a tipping point in many ways," says George Miller, analyst at Benchmark Mineral Intelligence (BMI), a specialist information provider for the lithium industry. "Many governments worldwide are now pursuing new policies around the so-called 'green energy' transition. Since the Covid-19 pandemic struck, people have become more conscious about the natural environment and are embracing renewable forms of energy. Even in countries such as China, people have noticed lower particulate emissions and fewer smogs over their cities; they would like to keep it that way. Many governments are now pursuing economic recovery policies and have decided this is an excellent moment to embrace a 'green economic' recovery."

 

Bolivia has the biggest lithium resources in the world

Identified lithium resources worldwide have jumped substantially over the past few years and total about 86 million metric tonnes (t), according to the US Geological Survey (USGS) in 2021. Resources in the US – from continental brines, geothermal brines, hectorite, oilfield brines and pegmatites ­– are estimated at 7.9 million tonnes. Lithium resources in other countries have been revised to 78 million tonnes. Bolivia has the biggest resources globally at 21 million tonnes, followed by Argentina (19.3 million tonnes), Chile (9.6 million tonnes), Australia (6.4 million tonnes), China (5.1 million tonnes), the Democratic Republic of the Congo (3 million tonnes), Canada (2.9 million tonnes) and Germany (2.7 million tonnes).

Even in countries such as China, people have noticed lower particulate emissions and fewer smogs over their cities; they would like to keep it that way. George Miller, BMI

Five mineral operations in Australia, two brine operations each in Argentina and Chile, and two brine and one mineral operation in China account for the majority of the world's lithium production. Australia is the globe's leading lithium-producing country at 40,000t in 2020, followed by Chile at 18,000t, China at 14,000t, and Argentina at 6,200t, according to USGS. The only lithium production in the US is from a brine operation in Nevada, called Silver Peak, which produced about 5,000t in 2020.

Lithium companies in Australia are dominant players in the global lithium market, providing major end industries globally with the metal. Major companies – including Tesla, Panasonic, Livent, LG, Ford and General Motors – will remain largely dependent on Australian lithium for some time to come. The Greenbushes lithium mine located 250km south of Perth and Fremantle in Western Australia – which is operated by Talison Lithium, a subsidiary jointly owned by China's Tianqi Lithium, Australia's IGO Group and US-based Albemarle – is being heralded as the world’s largest project to extract the metal (its production of lithium carbonate-equivalent is expected to increase to more than 160,000t per annum shortly).

Lithium carbonate is the first chemical in the lithium production chain, with compounds such as lithium hydroxide being produced with subsequent steps if needed. For that reason, lithium production numbers are often broken down in terms of lithium carbonate equivalent (LCE). The total global demand for LCE was around 300,000t in 2019 but jumped to 349,000t in 2020, according to BMI. It forecasts that demand will jump to 441,000t this year, 552,000t in 2022, 706,000t in 2023, 891,000t in 2024, and 1.1 million tonnes in 2025. Fitch Solutions is not so bullish and forecasts global LCE consumption will be 689,000t in 2025.

240 million EVs could be on the roads by 2030

The International Energy Agency says there could be 130 million EVs on roads worldwide by 2030, maybe 240 million if governments accelerate moves towards carbon zero (there were about 6.8 million on the roads worldwide in 2020). BMI forecasts that the EV fleet worldwide will be about 160 million in 2030 on its base case and 190 million on its upside case. Fitch Solutions forecasts the global EV fleet to total 143.6 million units in 2030.

The global weighted average price for lithium carbonate went as high as $17,500 and for lithium hydroxide to nearly $20,000. George Miller

Whatever the correct figure, demand for lithium for EV batteries will shoot up. Just how much of it the world will require in total for the clean and technology revolutions by 2030 and by 2040 is hard to calculate. "If you can answer that question with certainty, you will be a rich man," says Hykawy.

China is the largest consumer of lithium globally, owing to the size of its battery manufacturing industry for EVs, renewable energy systems and consumer electronics. Experts expect it to continue investing in lithium projects worldwide, as well as in research and development to improve extraction domestically. For China to fulfil its goal of achieving peak carbon emissions before 2030, the country would need to ensure significant lithium supply security in the coming years.

The global weighted average lithium carbonate price has fluctuated markedly during the past few years. In January 2017, it averaged $11,637 per tonne but then reached a peak of $17,512 in March 2018, according to BMI. Between that date and December 2020, the price steadily fell to $6,125. In 2021, the price has been rebounding and averaged $12,958 in July.

"The global weighted average price for lithium carbonate went as high as $17,500 and for lithium hydroxide to nearly $20,000," says Miller. "We could see that again or higher. Lithium is incredibly important for the movement away from the environmentally damaging and unsustainable practise of burning fossil fuels, and towards the facilitation of renewable energy usage and a gross reduction in emissions from all aspects of the world economy."

Lithium carbonate price could reach $15,000 by 2022

Fitch Solutions forecasts Chinese lithium carbonate 99.5% to average $13,450 per tonne in 2021 and $15,025 in 2022, and Chinese lithium hydroxide monohydrate 56.5% to average $11,950 in 2021 and $14,300 in 2022. Chinese lithium carbonate 99.5% will average $15,595 and Chinese lithium hydroxide monohydrate 56.5% will average $17,500 in 2025, according to the company.

A faster-than-anticipated advancement of battery recycling technology presents a risk to lithium prices by significantly expanding sustainable lithium supply. Sabrin Chowdhury, Fitch Solutions

Looking beyond batteries, lithium carbonate is also used in ceramics, glass, cement and aluminium processing. Global end-use markets for lithium are estimated at batteries (71%); ceramics and glass (14%); lubricating greases (4%); continuous casting mold flux powders (2%); polymer production (2%); air treatment (1%); and other uses (6%), according to USGS. Lithium carbonate also has an important use in the pharmaceutical industry: it has been on WHO’s list of essential medicines as a treatment for bipolar disorder, for example.

"In the longer term, lithium prices are likely to be impacted by green premiums due to heightened priority of sustainable lithium extraction techniques," says Chowdhury. "A faster-than-anticipated advancement of battery recycling technology presents a risk to lithium prices by significantly expanding sustainable lithium supply."

However, Hykawy does not entirely agree. "There was an argument a few years ago that went like this: we are entering a new paradigm," he says. "Various industries absolutely require lithium batteries. The actual raw lithium value in the battery of, say, a cell phone is worth pennies. So, if that raw lithium value doubles because the price of lithium doubled, who cares? The price will go up and to the right forever.

"And this, from a marketing point of view, is garbage. It neglects the other half of the equation entirely: supply response. If the material in question is very rare and getting more is going to become extremely expensive, then the above argument will be close to the truth. I would argue there would be some thrifting of lithium and maybe some technical substitution – some manufacturers would use a smaller battery than they like, some would maybe use a nickel metal hydride battery instead of lithium – but prices would increase. Lithium is not rare and there are new technologies for processing lithium that are entering the market. Together, that will keep the availability of lithium high."

He adds that the market saw a shortage-induced price spike in 2016 and 2017, which led to a decent supply response that crushed prices through to the early part of 2020. Owing to overproduction and decreased prices, several established lithium operations then postponed capacity expansion plans. Junior mining operations in Australia and Canada ceased production altogether.

The lithium market turns a corner in 2021

The market may have turned a corner in 2021 and increased supply seems to be on the way. "We are now in a demand and restocking induced upward swing in prices," says Hykawy. "I expect the prices to keep bouncing around a bit, hopefully with lower levels of amplitude. But it’s not a question of ‘how high could prices go?’ because new entrants will come into the market and push the price down when it does get too high."

I expect the prices to keep bouncing around a bit, hopefully with lower levels of amplitude. Jon Hykawy

He adds that in the long term, a price of about $7,000 to $8,000 for technical-grade lithium carbonate would "keep everyone happy" and that the market is above that price right now.

On this topic, Fitch Solutions' Chowdhury says: "The outlook for the lithium sector on a ten-year horizon is very upbeat, amid fast production and demand growth, and plenty of opportunities across a variety of countries. The lithium sector is not only fast-growing, it is also fast-evolving, and it will go through key changes in the coming years amid improving demand and price fundamentals. The lithium market is seeing the emergence of many new players across a variety of regions, from a geographical production and consumption perspective, as well as from a competitive landscape perspective.

"Constant technological advancements in both the supply and demand sides pose risks to the market outlook. Meanwhile, lithium is now considered a strategic mineral, which will lead to rising government intervention, in its production and sourcing. However, the lithium supply landscape will evolve quickly and dramatically over the next five years."

Lithium comes from brines and hard rock

Lithium comes from two main sources: brines and hard rock. Both are on the verge of seeing changes in processing technology that will expand supply and reduce costs. In terms of lithium production, not all lithium carbonate is created equal and end-products must meet specific requirements to be used in different applications. For example, battery-grade lithium carbonate can be used to make cathode material for Li-ion batteries, but most contaminants must be removed for the material to be considered battery grade.

"Lithium supply security has become a top priority for technology companies in the US and Asia," said Brian Jaskula, a mineral commodity specialist at USGS, in a report in January 2021. "Strategic alliances and joint ventures among technology companies and exploration companies continued to be established to ensure a reliable, diversified supply of lithium for battery suppliers and vehicle manufacturers."

He added that brine-based lithium sources were at various stages of development in Argentina, Bolivia, Chile, China and the US; mineral-based lithium sources were at various stages in Australia, Austria, Brazil, Canada, China, the DRC, the Czech Republic, Finland, Germany, Mali, Namibia, Peru, Portugal, Serbia, Spain and Zimbabwe; and lithium-clay sources at various stages in Mexico and the US.


According to Fitch Solutions, a study of the location of lithium operations (active and new projects) globally shows that Latin America (Chile and Argentina) and Asia-Pacific (Australia and China) clearly dominate the lithium upstream market. While the US and Canada come on top in terms of total operations, all are new projects, which highlights its view that North America has plenty of potential in terms of future output.

Fitch Solutions expects to see a surge in lithium development projects in Africa as well, and estimates that there are eight lithium mining projects currently in development on the continent – in Zimbabwe, Namibia, Mali, Ghana and the DRC – a small number compared with the number of projects being developed in the Americas, Australia and Europe. Zimbabwe will remain the largest lithium producer in Africa in the near term, with production growth underpinned by the Arcadia Lithium Project, located close to the capital, Harare, and by government support. AVZ Mineral's $454m Manono project in the DRC should help to develop the lithium sector in that country. However, Fitch says that projects in African countries with lower levels of country risk, such as Ghana, are more likely to attract financing from risk-averse investors.

Most lithium is sourced in places such as South America and China from open-pit mines or lithium-containing saltwater beneath salt flats, which is pumped into large basins where it evaporates under the sun. Both techniques can lead to land destruction, potential contamination and high water consumption, notably in areas already suffering from drought and desertification.

Argentina, Bolivia and Chile possess more than 60% of global lithium reserves; however, their lithium extraction techniques involve about 1.89 million litres of water per tonne of lithium produced and can result in both water supply and air contamination.

Lithium start-ups try to use geothermal energy

Many lithium start-ups in the Western world are developing lithium projects that are designed to have a zero-carbon impact, including direct lithium extraction (DLE) techniques, which extract lithium from underground brine. DLE enables a more sustainable lithium supply, including using geothermal energy as the renewable power source for production. It is popular with governments and investors that want to keep carbon emissions to a minimum.

We expect DLE technology to dominate the future lithium mining sector, with geothermal lithium extraction techniques to rise in popularity among Western lithium buyers. Sabrin Chowdhury

"Firms positioned along the battery supply chain will continue to invest in research and technology to reduce the environmental impact of lithium extraction," says Fitch Solutions' Chowdhury. "We expect DLE technology to dominate the future lithium mining sector, with geothermal lithium extraction techniques to rise in popularity among Western lithium buyers. In turn, zero-carbon lithium products will sell at a premium compared with hard rock mine output. Providers of more environmentally friendly lithium (lower water usage and carbon emissions) will most likely be rewarded in that respect."

A zero-carbon lithium project being developed by Vulcan Energy Resources, an Australian lithium producer at its deep brine resource in the Upper Rhine Valley of Germany will bolster that country's potential to become a leading regional producer of sustainable lithium. It has partnered with EIT InnoEnergy, a German energy company, to produce zero-carbon lithium hydroxide from geothermal brines in the valley. In February 2021, Vulcan said that it will partner with DuPont Water Solutions to test and scale DLE in its definitive feasibility study. The project is scheduled to produce 15,000 to 40,000t of battery-grade lithium hydroxide beginning in 2024.

Furthermore, the firm's Upper Rhine Valley project has inferred and indicated resources of 15.9 million tonnes contained LCE, making it the largest lithium resource in Europe and well-positioned to serve Germany's demand for EV and portable electronic batteries. In March 2021, a bulk brine sample analysis revealed low impurities that will support its performance in DLE.

"Germany’s Upper Rhine Valley offers promising lithium mining opportunities, which will prove compatible with the EU’s environmental agenda," says Chowdhury. "Should the EU deem the water-intensive extraction techniques in South America as having significant negative environmental impact, new technologies in Germany could provide an eco-friendly way to reduce Latin American dependence."

BMI's Miller highlights the push by companies and investors to ensure the whole of the lithium supply chain is net zero. "Geothermally powered facilities are a great concept, and among such an environmentally focused downstream industry there is certainly demand for lithium produced using renewable energy," he says. "The worry is whether they would attract enough investment to cover upfront costs and be commercially viable at scale; these projects often need to be subsidised by governments at current cost levels."

Geothermal energy production is expensive

As things stand, geothermal energy production incurs high upfront costs and places restrictions on the location of lithium extraction and so limits its use. On the other hand, it is attractive to investors, as it has the lowest carbon footprint of any renewable energy (zero carbon) and, once set up, would provide efficient energy for a very long period in a location where an environmentally damaging mine might not be possible (in other words, close to an original equipment manufacturer's site).

We definitely see a future for geothermal energy in the lithium industry; however, it will take time to ensure it is cost-effective at commercial scale and for new technology to develop towards that goal. George Miller

"We definitely see a future for geothermal energy in the lithium industry; however, it will take time to ensure it is cost-effective at commercial scale and for new technology to develop towards that goal," Miller adds.

In August 2021, Geothermal Engineering, a UK-based engineering company, said it had found the world’s highest concentration of lithium in geothermal waters (more than 250mg per litre) at its United Downs project near Redruth in Cornwall in south-west England. Based on tests, the firm said it could produce 4,000t of lithium per year by 2026. In June 2021 Cornish Lithium, a mineral exploration and development company headquartered in Cornwall, said that it had raised a further $8.2m towards its aim of creating a battery metals hub at its Trelavour project at United Downs.

However, it is not clear whether lithium has the potential to transform the economies of some developing countries, such as Bolivia. This depends on royalties and how much value-added production they can keep within the countries. "It could prove very valuable to these countries, given their competitive advantage in producing cheap lithium carbonate," says Miller.

Hykawy is not so sure, however. "No, lithium won’t change the economies of places such as Chile and Argentina," he says. "Even if the demand were to scale to the mythical levels of one million tonnes of lithium carbonate equivalent per year, the global demand for iron, for example, is about 1.5 billion tonnes per year. Copper is 25 million tonnes a year and we will need a whack-load more copper to shore up our electrical grid before we ever need the lithium. Lithium is and will remain a critical speciality material. Not to say, though, that a new lithium mine can’t invigorate and change a local economy, like any other mine."

Large-scale recycling is a distant dream

Experts see long-term potential in the recycling of Li-ion batteries but this industry remains nascent. A battery pack for a car is heavy and big, it could contain tens of kilograms of lithium chemicals, valuable engineered products. However, collecting and opening up the batteries is not so simple.

Lithium battery packs will be recycled but we are going to have a bit of a wait before there are enough old battery packs to make it worthwhile to develop an industry. Jon Hykawy 

Many people have small lithium batteries sitting in drawers around their homes in the form of old portable electronics. "Is it really worth someone transporting those, opening up the battery by hand and scraping out maybe a couple of grams of lithium?" Hykawy asks. "Lithium battery packs will be recycled but we are going to have a bit of a wait before there are enough old battery packs to make it worthwhile to develop an industry."

Fitch Solutions says that in the near term, the growth of the battery recycling industry will continue to be limited by cost and policy challenges. "At present, it is hard to create a standardised recycling process that would increase cost-efficiency, thus making it difficult for recycling companies to make profits," adds Chowdury. "Li-ion batteries vary by design and composition, and private manufacturers do not publicly disclose a lot of information about battery content. In turn, most Li-ion battery recycling involves currently utilised pyrometallurgy. Although it is a more cost-effective method, it is energy-intensive and has poor lithium recovery."

Alternatives to Li-ion batteries are being developed but it is a slow process. First, there are augmentations to traditional lithium batteries, such as solid-state cells. Second, there are alternative technologies such as metal-air batteries or sodium-sulphur cells. Cost-effectiveness and safety and longevity are open questions until commercial testing takes place.

"The periodic table is only so big," says Hykawy. "There are only so many combinations of materials from which it is possible to make a battery. Lithium batteries are quite energy-dense, inexpensive, safe and durable. It’s going to take a lot to displace them."

Lithium is key to the green and technology revolutions happening in the world today and is likely to remain so for a long time to come. Demand for the metal is shooting up and it will take years for new supplies to come on stream. Many fashionable lithium start-ups are spawning around direct lithium extraction techniques but it is not clear if they will ever make money. Recycling of the metal remains a distant dream and battery alternatives to Li-ion remain a long way off. Its market price is likely to remain high until a new supply becomes available.

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