Lithium demand could outpace supply due to low prices, few projects

By IM Staff
Published: Monday, 08 July 2019

New lithium projects are falling short of expected consumption, meaning demand could soon outpace supply.

Global lithium demand could outpace supply in the coming years, with the number of new projects expected to fall short of expected consumption amid doubts on capital availability and low prices, market participants said at Fastmarkets’ 11th Lithium Supply & Markets Conference, held in Santiago, Chile, in June.
Still, major companies in Chile and Australia seem to be best positioned to increase capacity. As a result, new supply could come from low-cost producers rather than marginal cost producers.

"The market seems to be in capital starvation. The question is if it is so deep that supply won’t be as great as expected going forward," McKinsey & Co leader for electric vehicles Ken Hoffman said.

"New projects, at least conceptually, will be coming from producers at the lower end of the cost curve, particularly from Chile," Morgan Stanley managing director Javier Martínez de Olcoz Cerdan said. "They have [virtually] unlimited resources [and capacity increases would come at] low cost, low capex."

The country is aiming to maintain its current share of global lithium output, at around 32%, and the country’s Ministry of Mining estimates that current projects around the world are enough to bring global production to 1.5 million tonnes per year from 2027.

"We will need new supply after 2027 if demand expectations do not materialize," Chilean vice-minister of mining Pablo Terrazas said. "Chile is the main lithium producer in South America [and] we need to take the lead and sustainably increase output."

This could mean that original equipment manufacturers (OEMs) will want to get more involved, granting the capital needed for this supply increase, Fastmarkets’ head of battery raw materials research William Adams said.

"The environment has been looking so constructive demand-wise for many decades, and low prices and depreciated equity markets could mean there is not enough money coming to the industry at a time when it is needed," he said.

The Chilean ministry of mining currently has three different scenarios for world lithium demand and in most of them supply would be tight.

A base-case of "medium demand" would mean consumption hitting 1 million tonnes by 2027-28, Terrazas said. 

In the bullish case, demand would total 1 million tonnes by 2024 and surpass 3 million tonnes in 2038. 

The bearish scenario, meanwhile, contemplates 1 million tonnes in 2034-35, reaching around 1.1 million tonnes by 2038.

Fastmarkets’ price assessment for battery-grade lithium carbonate (minimum 99.5%) in main ports in China, Japan & South Korean was $11-12.50 per kg cif on June 6, the lowest level since at least August 2017. Prices were at $13-15 per kg on December 27.