The sky is the limit for lithium prices

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The energy transition is driving the next commodity supercycle, with huge prospects for technology makers, energy traders and investors. Clean energy technologies require more metals than their fossil fuel-based counterparts, with green metal prices are projected to reach historic highs for an unprecedented extended period under a net-zero emissions scenario.

But few, if any, green metals have seen a price explosion as epic as that of lithium.

Fastmarkets currently estimates the spot price of battery-grade lithium carbonate in China at 400,000 to 430,000 yuan, up 47% just two months into the new year; nearly 2.5 times the 175,000 yuan per ton they ordered in the last big lithium boom of 2017 and an astonishing 8 times higher than at the start of 2021.

Many investors who were burned by the last lithium price crash of 2018 likely watched on the sidelines, unsure what to make of the current mega-rally.

To be fair, China’s spot market, where small tonnages can have big price impacts, may accentuate the scale of this mega-rally, but make no mistake: this is not a fake. flag, with everything from mined spodumene to high purity. hydroxide, and every component in the lithium processing chain is experiencing a price spike.

The price explosion tells you that the supply of lithium is simply nowhere near enough to fuel this surge in demand.

Explosion of demand

The last lithium boom five years ago was attributed to the inability of producers to anticipate the surge in demand emanating from China’s subsidy-driven EV rollout.

The ensuing supply response, particularly from hard rock spodumene producers in Australia, proved to be overblown, causing prices to plummet in 2018-20.

Consequently, new mines were mothballed, expansion projects were postponed, and many explorers abandoned their operations and left to try their luck elsewhere.

Then suddenly, in a classic commodity boom-collapse-boom cycle, it happened: lithium producers were again caught off guard, ill-prepared to meet today’s even stronger demand fueled by the global energy transition and the electric vehicle revolution.

According to Adamas Intelligence, a record 25,921 tons of lithium carbonate equivalent (LCE) were deployed on the roads in new passenger vehicles globally in December 2021, representing an increase of 31% M/M and 68% Y/Y. The exponential utilization curve reflects the equally rapid increase in global vehicle sales.

Sales of electric vehicles and new energy vehicles (NEVs) in China jumped 157.5% to 3.52 million units in 2021, marking robust growth in an otherwise lackluster domestic auto market.

Many electric buses in China have switched to lithium iron phosphate (LFP) batteries. Two years ago, Tesla Inc. (NASDAQ: TSLA) introduced LFP batteries to its standard Model 3 lineup in China and dropped the starting price from 309,900 yuan ($48,080) to 249,900 yuan ($38,773). Last year, EV kingpin Tesla announced it was change battery chemistry for all models 3 and Y in the standard range, from nickel-cobalt-aluminum (NCA) chemistry to an older alternative technology which uses LFP chemistry. CEO Elon Musk has revealed that the improved energy density of LFP batteries now allows the cheaper, cobalt-free batteries to be used in its low-end vehicles to free up more lithium-ion chemical cell battery supply. for other Tesla models. .

Unfortunately, despite the growing popularity of LFP formats due to falling costs, Chinese battery manufacturers are discovering that you can fiddle around with mixing metal cathodes all you want, but you’ll still need lithium.

A similar scenario is playing out in Europe, where the NEV sector is booming while the ICE sector continues to contract. According to the European Automobile Manufacturers Association, new registrations of plug-in hybrid vehicles on the continent jumped 71%, with sales of pure battery vehicles increasing 63% in 2021 compared to 2020.

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.

The explosion in demand for lithium will only accelerate: according to the US Department of Energy, 13 new battery cell giga-factories are expected to go live in the US only by 2025.

Apart from Tesla new ‘Gigafactory Texas’ in Austin, Ford engines (NYSE:F) aligned 3 gigafactories; one northeast of Memphis, TN, and two in central KY, the latter two being a joint venture between the company and the South Korean energy holding conglomerate SK Innovations.

General Engines (NYSE:GM) plans to build no less than four gigafactories, one being a joint venture with LG Chemistry (OTCPK: LGCLF) and the other three being JVs with LG Energy Solutions (LGES). LGES is one of the world’s leading manufacturers of batteries for electric vehicles, supplying in particular Tesla and General Motors. LG Energy Solution applied for preliminary approval for an IPO this publication, according to the IFR, could bring in between 10 and 12 billion dollars, easily the biggest quotation ever recorded in South Korea. LGES has announced plans to invest more than $4.5 billion in its battery plant in the United States by 2025.

Meanwhile, SK Innovations plans to build two battery factories northeast of Atlanta, GA; Stellantis SA (NYSE: STLA) partners with LG Energy Solution and Samsung SDI build two factories in locations yet to be determined while Toyota Motor Corporation. (NYSE:TM) and volkswagen (OTCPK:VWAGY) plan to build a gigafactory in southeast Greensboro, NC, and Chattanooga, TN, respectively.

Meanwhile, electric vehicle sales are set to grow exponentially, with BNEF predicting that nearly 60% of new car sales must be zero emissions by 2030, to stay on track for the Net Zero scenario.

Annual sales of passenger electric vehicles (battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs))

Source: US Department of Energy

Slowing down the electric vehicle revolution

Unfortunately, soaring prices for lithium and other raw materials needed for renewable energy – a trend known as greenflation – are increasing the costs of setting up new green energy projects, which could slow the pace of the transition.

This trend is problematic because falling costs have been a major driver of the clean energy boom.

The rapid fall in EV battery prices has played an important role in the widespread adoption of electric vehicles. According to Bloombergover the past decade, EV battery prices have fallen from nearly $1,200 per kilowatt-hour to just $137/kWh in 2020. For an EV with a 50 kWh battery, that’s a savings of over $43 $000 in real terms.

But now BloombergNEF is predicting a 2% rise in battery prices this year, potentially pushing back the point at which electric vehicles will reach cost parity with conventional cars by 2026, two years later than its previous forecast.

By Alex Kimani for Oilprice.com

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