Column: Lithium Supply Crisis Part II – This Time It’s For Real: Andy Home

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LONDON, Feb 15 (Reuters) – The lithium supply crisis has come full force. The price spike of 2016-2017, it is now clear, was just a dry run. This is the real deal.

In November 2017, the spot price of battery-grade lithium carbonate in China peaked at 175,000 yuan per ton. Fastmarkets currently values ​​it between 400,000 and 430,000 yuan, up 47% year-on-year and eight times higher than at the start of 2021.

China’s spot market, where small tonnages can have big price impacts, may accentuate the magnitude of the ramp-up, but that’s not a false flag. From mined spodumene to high-purity hydroxide, every component in the lithium processing chain is experiencing a price spike.

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There just aren’t enough things to keep up with demand right now.

The scarcity of what is an essential input for electric vehicle (EV) batteries could potentially act as a powerful drag on electric mobility, with profound implications for global decarbonization efforts.

Lithium prices soar as supply shortage hits

BOOM BUST BOOM

The seeds of the current lithium boom were sown five years ago when prices soared to then-record highs as producers failed to anticipate the surge in demand from China’s subsidy-driven rollout of electric vehicles. .

The collective supply response, particularly from hard rock spodumene producers in Australia, then proved to be far too strong, driving the 2018-2020 price crash.

New mines were mothballed, expansion projects were postponed and explorers left to seek their mining fortunes elsewhere, digging the new pipeline of projects.

In classic commodity cycle style, this has left producers ill-prepared to meet the current, even greater surge in demand. The resulting lack of units is fueling the hot lithium rally.

DEMAND EXPLOSION

A record 25,921 tons of lithium carbonate equivalent (LCE) were deployed on the roads in new passenger vehicles globally in December 2021, according to Adamas Intelligence. That was up 68% in December 2020 and a jump of 31% month-over-month.

The exponential lithium usage curve simply reflects the equally rapid increase in global sales of vehicles using lithium-ion batteries.

Chinese sales of new energy vehicles (NEVs) rose 157.5% to 3.52 million units in 2021, a remarkable accolade within a moribund domestic auto sector. Read more

The launch of cheaper vehicles using a form of battery that does not include nickel or cobalt – lithium iron phosphate (LFP) – is increasing tensions in the market for carbonate raw materials, which manifests itself in a premium rare price for carbonate compared to lithium hydroxide.

The electric vehicle revolution is now spreading to Europe, where NEV sales surged last year even as gasoline and diesel sales contracted.

New registrations of plug-in hybrid vehicles jumped 71% and pure battery vehicles 63% in 2021 compared to 2020, according to the European Automobile Manufacturers Association (ACEA).

The pace of growth continues to pick up as the European Union channels stimulus funds into green transition channels.

Alternative-powered vehicles accounted for almost half (47.8%) of the EU car market from October to December 2021, with more than one million units registered in total, ACEA said.

As Chinese battery makers are finding out the hard way this year, you can play around with mixing metal cathodes all you want, but you’ll still need lithium.

And the appeal of current demand is even greater than that implied by the explosive sales of electric vehicles.

A new industrial sector is taking shape to manufacture batteries for use in vehicles. The number of gigafactories – huge assembly plants whose output is measured in giga, or billions of watt-hours – is proliferating.

Each must build up a working stock before the first power-up, resulting in a huge but largely hidden lithium call.

DEFICIT TODAY, DEFICIT TOMORROW?

The price explosion tells you that the supply just isn’t there to fuel this surge in demand.

Fastmarkets analyst Will Adams puts the likely shortfall this year at around 60,000 tonnes of lithium carbonate equivalent (LCE), pointing out that this is based on apparent demand, allowing for stockpiling.

Specialist consultancy Benchmark Mineral Intelligence (BMI) thinks it will be smaller at 26,000 tons, while Citi is somewhere in the middle with an expected gap of 36,000 tons (“Lithium outlook”, February 9, 2022) .

New mines and restarts of idle capacity will generate a supply response as the year progresses, with Fastmarkets anticipating robust production growth of 28% this year and another 27% in 2023.

The timing is far from certain, however, given the potential for mine ramp-up start-up issues and the lingering effects of COVID-19, particularly in Australia.

And will that still be enough?

BMI is unconvinced, sketching consecutive years of deficit, with the cumulative deficit reaching 300,000 tonnes of LCE by 2030. (“Where will the new lithium supply come from in 2022?”, February 4, 2022)

E-MOBILITY BRAKE

The way this commodity story normally plays out is for the price to rise high enough to destroy short-term demand and boost medium-term supply.

Such price scarcity is already evident in other parts of the metals world, with tin reaching new all-time highs amid strong demand, continued supply shortages and low inventories.

Could lithium follow the same path?

Pricing pressures are already building up in the electric vehicle sector, with the recent decline in battery prices having stalled as raw material costs outweigh years of technical improvements.

China’s biggest electric car maker BYD (002594.SZ) said last month it was raising the cost of some brands by 1,000 to 7,000 yuan ($158 to $1,104) due to rising vehicle costs. metal inputs.

The problem for battery makers is that it’s not just lithium prices that have risen sharply. The same goes for those of cobalt and nickel, two other key metal ingredients in the battery mix.

Metals risk becoming a significant drag on the collective ability of automakers to scale up production of electric vehicles to meet carbon emissions targets.

“The industrialization of mining and refining capacity may not progress as quickly as demand increases,” Mercedes-Benz chief executive Ola Kaellenius conceded in an interview with German newspaper Die Zeit.

It wouldn’t stop the transition to e-mobility, but it could potentially delay it, Kaellenius said.

In other words, if global lithium producers can’t catch up with runaway battery demand, the green revolution is going to have to slow down.

($1 = 6.3463 Chinese yuan renminbi)

The opinions expressed here are those of the author, columnist for Reuters.

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Editing by Jan Harvey

Our standards: The Thomson Reuters Trust Principles.

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