Sonja Schadeck
Techno-Economic Engineer – Lithium
Should lithium producers hold back, or go full-speed to market?
Anyone keeping a close watch on the volatile current spot prices of lithium carbonate equivalent (LCE) may find it challenging to see the wood for the trees. Focusing on the frequent and often spectacular ups and downs, it’s easy to lose sight of the bigger, long-term lithium landscape. Those who take such a short-term view are likely to be sceptical about any decision to fast track the development of a lithium mining project. Their dismissal of the idea as high-risk may be simply short-sighted.
Delaying may be riskier
Using down to earth logic backed by data, this article will demonstrate why, in the light of a perceived high risk due to fluctuations and a negative “short-term” spot prices, the long-term perspective is, in fact, rock solid. From such a sound perspective, every mine executive and shareholder currently evaluating and/or developing a lithium project faces little risk if they adopt an agile, fast-time-to-market approach now.
Globally, the consumer is pushing the energy transition. A market eager to be greener has resulted in a single dominating contributor to lithium demand: electric vehicle sales. The demand is boosted by governments across the world offering incentives and implementing laws to stimulate EV sales.
EV demand for Li is speeding up
There’s another factor accelerating the adoption of EVs: the fact that by 2025, the prices of EVs and internal combustion engine vehicles are expected to converge. By 2030, EV penetration will be nearly 50%. While it is true that the short-term growth cycle might vary up and down at any given time based on consumer confidence (and related governmental support for EV cars), the long-term growth in EV sales is undisputed.
Image 1: Production / Market Penetration2
Consequently, in absolute numbers, the world will witness an estimated increase from 2 million electric vehicles sold in 2020 to 73 million sold in 2040. Simply put, between now and 2035 you can expect to see double-digit growth in EV sales worldwide.
Image 2: Global electric vehicle sales volume growth
In 2006, lithium-ion batteries for EVs represented 22% of all lithium production. In 2023, Li-ion batteries are projected to account for 85%. By 2030, a whopping 95% of lithium will be produced for use in EV batteries.
Image 3: Lithium (LCE) demand from 2006 to 2026:How lithium-ion batteries for EV’s have grown the lithium industry
25% more lithium must be produced
To power the transition to EVs, a conservatively estimated supply delta of roughly two to three million tonnes of lithium carbonate equivalent exists between today’s production and that projected for 2030. This is based on today’s estimated production of 600 000 tonnes of LCE and an estimated demand in 2030 of two to four million tonnes of LCE. The tonnage depends on the source, but it is 3.5 to 6.5 times more than today’s production. This equates to a $42- billion investment needed to develop the entire value chain; in terms of volume, it requires 25% per annum growth in lithium production. Zooming out of the volatility of short-term demand and supply forecasts (the close-up view of the trees where most perceptions of risk originate as opposed to the big-picture view of the forest), most sources confirm the same trend.
In the near term (2023-2024) we will experience a price correction due to a small oversupply. It is assumed that this phase of oversupply will trigger a decrease in battery prices. After 2024, the lower battery prices will sow the seeds for a super cycle to respond to rapidly increasing EV sales. The second phase of this decade will see demand consistently exceeding supply.
Image 4: Lithium demand vs supply forecast
Considering it takes between six and 15 years to bring a lithium mine online, the world has some catching up to do. Producers have little risk in acting now to shorten the development cycle as much as possible. Only by doing so will they gain maximum benefit from this growing lithium opportunity.
Get in, for the long win
It is a huge opportunity to fullfil a rising global need – the ambitious energy transition that manufacturers, consumers and their governments are calling for. In planning to meet this surging demand, conventional lithium producers have no reason to regard new technological developments as threats. On the contrary; Direct Lithium Extraction, Direct Shipping Ore, Direct Lithium to Production, and any other new technology on the horizon, none of these will fundamentally disrupt the lithium opportunity or its prices; these methods will just be one factor expected to contribute a mere 10% to the supply.
Much of the current concern about lithium originates from today's spot prices of lithium carbonate equivalent (LCE, from which lithium hydroxide is produced), especially in China. To eliminate most of the worries, one needs to add some historical perspective and recent macro political evolutions to the long-term opportunity discussed above.
In 2010, LCE traded at an average of $5 000/t. In November 2022, we reached an all-time high of $60 000/t (though, on average, it traded at $37 000/t). The current LCE spot price is roughly $30 000/t, still six times higher than in 2010, so in relative terms still “high”. Market rumours have it that, although spot prices are in a decline, 2023 contract prices are nevertheless solid.
According to Benchmark’s lithium price assessments, apart from the dip in 2020, lithium prices have been well above the marginal cost of production since 2017 and are forecast to stay at that level until early 2030s.
Image 5: Average lithium carbonate price from 2010 to 2022 (in u.s. dollars per metric ton)
China currently has the biggest consumer audience. They have a first mover advantage, both in lithium extraction (locally and abroad) and in production of final concentrate. Counterbalancing this is the fact that China only sits on 13% of the lithium resources and is importing 60% of Australia's lithium production to power its EV demand. In addition, the EU and USA have been dormant but are waking up quickly. They are gearing their politics towards securing the entire value chain - from mines to the production of final concentrate - to accommodate a sizeable and eager consumer audience. This will level out the influence from the Chinese market in the future.
Of course, when it comes to any specific project, every owner has their own idea of what an attractive EBIT represents for its investors and what level of profit makes running their lithium mine worthwhile. Such an estimate of earnings would typically be based on a conservative future price of LCE or another lithium product price such as DSO and SC6.
Confidence in the quality and quantity of your deposit is key. If these are established with a high level of certainty, the current short-term price decrease followed by a positive super cycle still makes a fast-time-to-market approach a rock-solid strategy, right now. Especially for those who can see the big-picture view, not only of the forest but the entire landscape.
Learn how Stark’s approach to lithium processing enables producers to take advantage of the demand sooner. Read Produce Lithium Faster to find out more.
To discuss your lithium production needs, talk to our experts, Eleanore Forner and Sonja Schadeck. Click here to contact us.
Disclaimer
The article’s sole purpose is to provide a bird’s eye view of the overall lithium market dynamics. It is based on public information (see Sources) that we consider reliable, but we do not take responsibility for its accuracy or completeness. Stark therefore takes no responsibility for investment decisions based on the content provided.
Sources
- Image 1: Production / Market Penetration2 – https://www.greencarcongress.com/2023/01/20230125-albemarle.html
- Image 2: Global electric vehicle sales volume growth – https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/battery-2030-resilient-sustainable-and-circular
- Image 3: Lithium (LCE) demand from 2006 to 2026:How lithium-ion batteries for EV’s have grown the lithium industry – https://www.benchmarkminerals.com/E
- Image 4: Lithium demand vs supply forecast – https://www.institutionalinvestor.com/article/b1sdwwdh7zqkxl/can-lithium-supply-keep-up-with-strong-ev-demand
- Image 5: Average lithium carbonate price from 2010 to 2022 (in u.s. dollars per metric ton) – https://www.statista.com/statistics/606350/battery-grade-lithium-carbonate-price/
- https://www.mckinsey.com/industries/metals-and-mining/our-insights/lithium-mining-how-new-production-technologies-could-fuel-the-global-ev-revolution
- https://www.visualcapitalist.com/visualizing-25-years-of-lithium-production-by-country/
- https://www.nsenergybusiness.com/features/six-largest-lithium-reserves-world/
- https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2022-full-report.pdf
- https://source.benchmarkminerals.com/article/analysis-lithium-industry-needs-42-billion-to-meet-2030-demand
- https://www.onecharge.biz/blog/battery-metal-prices-and-their-impact-on-materials-handling-industry-electrification-trend/
- https://tradingeconomics.com/commodity/lithium
- https://energynow.com/2022/05/goldman-says-bull-market-in-battery-metals-is-finished-for-now/
- https://lithiumionrocks.podbean.com/
- https://www.globallithium.net/podcast