A 21st century lithium rush

By Martim Facada
Published: Monday, 04 December 2017

Global electric vehicle production growth is stretching the supplies of battery materials needed to make them. Martim Facada looks at the impacts on lithium demand, prices and production

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.

 SQM lithium
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).

 lithium carb vs hydro

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. 

 capture 1 lithium

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.

 EV Policies

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.