The rapid and unexpected boom in lithium carbonate and
lithium hydroxide demand at the end of 2015 caused a sharp rise
in prices as well as prompting producers to start planning
production increases and asset diversification to meet global
lithium market demand.
That rapid growth in demand is expected to continue as the
electric vehicle (EV) sector in China, Japan and South Korea
surges and the rest of the world also ramps up EV production.
Yet, one of the main obstacles to this growth is the tight
availability of lithium compounds due to the difficulty of
bringing new lithium sources online. If history is any guide,
technical obstacles could mean lithium supply will struggle to
grow at the same rate as expected demand.
"Lithium demand is anticipated to double in the next five
years and to double again five years after that, mainly due to
demand for batteries and electric vehicles in particular,"
Daniel Jimenez, senior vice president of commercial lithium at
SQM in Chile told Metal Bulletin sister title Industrial
Minerals.
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| Salar of Atacama,
Chile
Source:SQM . |
"Supply is growing as well and there are several announced
projects [that]… if they reach nameplate capacity on
time, we shouldn’t see any lithium supply
issues," Jimenez said, adding: "but [what] we have seen in
past years is that producing lithium is a complex process
– [and] during the past 15 years, the majority of
the lithium projects developed have suffered delays and
have produced less than expected in the first year."
Developing lithium mining projects, whether brine or hard
rock lithium, can be incredibly lengthy. Several years can
pass in the time it takes to complete environmental studies,
receive permitting approvals and finish the feasibility
study, but most important is project financing and know-how,
which remain two key constraints for several junior lithium
producers. From scratch, new lithium mining projects can take
up to 10 years or more before starting production.
"Junior lithium producers need partners; we see this trend
becoming more common in the industry [because] expertise and
funding are very important for new lithium projects to
take-off," Orocobre chief executive officer, Richard Seville,
said during his presentation earlier this year at the 9th
Industrial Minerals Lithium Supply & Markets
Conference.
"Supply will be slower than desired, anticipating a tight,
if not under-supplied, market until 2020," Seville added.
Lithium carbonate equivalent (LCE) demand is anticipated
to treble to 600,000 tonnes per year by 2026 against an LCE
supply that is expected to double to 379,800 tpy by the same
year, according to Industrial Minerals Research Global
Lithium Market: Five Year Strategic Outlook.
Demand is thus set to exceed supply. By how much will
depend on how fast the new and pre-existing lithium producers
will come online with more or new production, while demand
from the automotive industry, portable batteries and grid
storage sectors, among other battery applications, increases
due to new companies (such as Volkswagen, Daimler, BMW and
Volvo) and countries joining the lithium rush.
Prices rocket
The rapid increase in demand for lithium compounds
prompted the skyrocketing prices seen in mid-2016, which
increased almost four-fold (296.5%) between October 2015 and
June 2016. The lithium carbonate (Li2CO3 ) spot price,
ex-works domestic China more than tripled to an average price
of $27 per kg in June 2016, from $7.70 per kg in October
2015.
On November 16, 2017, the average spot price, ex-works
domestic China for lithium carbonate was $24.30 per kg while
the average spot price of lithium hydroxide (LiOH.H2O, min
56.5-57.5%) in China was $22.70 per kg, according to
Industrial Minerals market assessment.
The current size of the lithium industry versus the sudden
booming demand promoted by the EV industry in China, Japan
and South Korea, has been a major obstacle for traditional
and junior lithium producers. In 2016, global lithium
production of LCE was 189,900 tpy against an estimated
200,000 tpy of LCE demand, according to The Industrial
Minerals outlook report.
In China, the most hectic of the three markets, EV
production and sales growth rates have risen close to 30% and
26% year-on-year in 2017, respectively, according to the
China Association of Automobile Manufacturers. The rapid
growth in lithium carbonate and lithium hydroxide battery
grade demand is starting to shift the Chinese lithium
end-user market away from more traditional uses such as
ceramics and glass to the new EV market.
By 2026, the global lithium end-user market is anticipated
to see a fundamental change where the battery sector occupies
closer to 65% of the world lithium end-user market against
the 35% occupied in 2016, according to The Industrial
Minerals outlook report.
China’s key role
Home to major consumers such as ByD, Geely and CATL
among others, the China, Japan and South Korea EV hub
accounts for over half of global lithium consumption. China
in particular has experienced very high growth rates
alongside higher prices when compared with the rest of the
world.
Throughout summer 2017, battery demand remained strong
while lithium carbonate battery grade suppliers were
delayed or simply could not deliver the material requested
against a higher availability of lithium hydroxide battery
grade within the Chinese domestic spot market, Chinese
consumers and producers told Industrial Minerals.
At the end of summer 2017, battery-grade lithium
carbonate availability in the Chinese spot market was
reduced dramatically against constant strong demand, which
produced a reversal of the traditional price relationship
between lithium carbonate and lithium hydroxide within the
Chinese domestic market.
The tightness seen in the lithium carbonate spot market
pushed this material price above the lithium hydroxide
prices at the end of the summer, according to trades
confirmed by producers and consumers to Industrial
Minerals. This happened only once before in mid-2016 when
prices hit unparalleled levels.
The lithium carbonate battery grade, ex-works domestic
China spot price for lithium carbonate, reached the average
price level of $24.70 per kg on September 14, 2017, while
the lithium hydroxide (min 56.5-57.5%) Chinese spot price
sat at the average price of $23.80 per kg, according to the
Industrial Minerals November 14 market assessment (see
graph 1).
At the core of this booming Chinese EV demand also lies
the Chinese state’s efforts to lower pollution
in the main cities, including the government’s
ambitious policy to restructure the Chinese industry.
Clean energy and EVs are part of the solution. In 2015,
the Chinese government started a five-year programme to put
at least 5 million EVs on Chinese roads by 2020 from
500,000 EVs in 2016. Supported by a subsidy programme, this
policy has promoted the rapid growth in electric bus, bike
and car manufacture.
The 2015 Chinese government aid programme for EVs,
viewed as a process to speed up electromobility and
decarbonisation of the Chinese economy, contributed to the
spike in lithium prices on the Chinese spot market between
the fourth-quarter of 2015 and second-quarter of 2016 (see
graph 2), while EV and battery manufacturers supported by
the government subsidies increased production regardless of
real domestic EV demand.
In 2017, the Chinese government reduced the subsidies
given and the way in which the subsidies were released. A
new subsidy policy was launched in 2017, leading to subsidy
decreases of 20% on passenger vehicles and 40-70% on buses,
depending on size (see table). This situation led to, what
is known in China as, 'subsidy cheating’ in
mid-2016, which saw the awarding of subsidies delayed and
an investigation and report launched. At least five of the
battery companies involved in this so-called subsidy
cheating were sanctioned, while some subsidies were
cancelled.
The Chinese government is currently working on the new
subsidy policy to help consolidate and develop the state of
the Chinese battery industry in a more sustainable way.
Despite the reduction in the Chinese
government’s subsidies in 2017, lithium
carbonate battery grade and lithium hydroxide battery grade
prices remained at high levels, exemplifying the booming
market in China and the commitment of battery producers and
the Chinese government to decarbonise the Chinese
economy.
Production mix changes
While EV manufacturers increased production, battery
grade lithium hydroxide has become the favourite lithium
compound used in lithium-ion batteries by cathode and
battery makers, especially those manufacturers who produce
NCM622 and NCM811. This is producing a shift in
producers’ product mix seen throughout 2017,
leading to higher lithium hydroxide production and
sales.
SQM, Albemarle and FMC are among producers who opted to
increase their lithium hydroxide output throughout 2017 to
fulfil battery and cathode makers’ consumption
needs. Moving forward, the shift in producers’
production mix will push for higher lithium hydroxide
volumes reaching the market, which today occupies 20% of
total world lithium production against the 45% occupied by
lithium carbonate production.
The constant strong growth rates in EV production and
sales in China, Japan and South Korea have kept the lithium
carbonate and hydroxide price levels at historic levels
within China and the rest of the world, due to tight
lithium availability globally, stressing the need for more
lithium production capacity to come online in the next few
years.
In order to address the increasing demand for lithium
compounds, the world’s major lithium producers
told Industrial Minerals that they plan to add more
capacity in future years to bring online more production of
lithium carbonate and hydroxide.
SQM will be increasing its total lithium carbonate
capacity to 63,000 tonnes per year from the current 48,000
tonnes per year by 2018, while its lithium hydroxide total
capacity will be increased to 13,500 tonnes per year from
6,000 tonnes per year by the end of 2017.
FMC Corp has doubled its battery-grade lithium hydroxide
total capacity to 18,000 tonnes per year in 2017,
anticipating that it will reach a total capacity of lithium
hydroxide of 30,000 tonnes per year by 2019 and expanding
beyond this level as customers require.
Albemarle Corp will be expanding its total capacity of
lithium products in Chile, increasing its total capacity to
more than 80,000 tonnes per year by 2020, from 44,000
tonnes per year in 2017.
Orocobre Ltd expects to reach a total production of
lithium carbonate for the 2017-2018 financial year of about
14,000 tonnes, while anticipating that it will increase its
total capacity of lithium carbonate and lithium hydroxide
to 35,000 and 10,000 tonnes per year by 2019.
In China, Ganfeng Lithium will be increasing its total
capacity of lithium carbonate to 29,500 tonnes per year by
2018 from the current 14,000 tonnes per year, while lithium
hydroxide total capacity is expected to be increased to
28,000 tonnes per year by 2018, against current total
capacity of 8,000 tonnes per year.
Meanwhile, Tianqi Lithium will be looking to expand its
annual lithium hydroxide total capacity to 29,000 tonnes
per year by 2018, up from current total capacity of 5,000
tonnes per year, while having a total capacity of lithium
carbonate of 27,500 tonnes per year.
The author is a market reporter with Industrial
Minerals.