Seven things we learned about the lithium market

By IM Staff
Published: Friday, 30 August 2019

Fastmarkets identified seven main takeaways from its 11th Lithium Supply and Markets Conference in Santiago in June.

New investments are key

A scarcity of capital in the lithium sector is a concern for many market participants, given the expected growth of downstream demand.

Although consumption of lithium carbonate equivalent is on track to grow to 1 million tonnes by 2025 from just below 300,000 tonnes in 2018, supply from new projects may fall short of this increased demand, depending on the pace of growth in the electric vehicle (EV) market.

Global output should approach 1.5 million tonnes per year in 2027, according to calculations from Chile’s ministry of mining, but it sees this as the sector’s maximum capacity, taking into account all current exploration projects.

New investment in Chile’s domestic lithium sector totals $1.81 billion, minister of mining Baldo Prokurica said. "[But] the world will need more lithium and we need more projects than today," vice minister Pablo Terrazas added.
"We want state and privately owned companies mining lithium in Chile," Prokurica said.

Although the EV sector is growing rapidly while automakers from the United States, Europe and China invest in higher capacity, upstream investment is trailing, Anthony Tse, chief executive officer at Australia’s Galaxy Resources, said.

"We are still lacking some $2 billion a year, still dwarfed by the amount of investments on downstream," Tse added. "We can’t wait to invest in 2025 as the projects will take a couple of years to build."

China’s EV subsidies to be replaced by legislation

Government funding for automakers will continue to ebb, while regulations on carbon emissions become stricter.

The latter will be supportive of increased production of new energy vehicles (NEVs) in the coming years, market participants said.

Flexibility is essential for survival

Lithium carbonate is set to remain the most widely used lithium compound in lithium-ion batteries in the coming years.

This is despite market participants anticipating lithium hydroxide overtaking lithium carbonate usage once production and adoption of nickel-rich cathodes, such as nickel-cobalt-manganese (NCM) 622 and 811, which typically use hydroxide, ramp up.
Producers Albemarle, SQM and Tianqi agreed that flexibility remains vital for addressing diverse industrial and technological challenges.

Nickel-rich batteries to dominate in the next few years

Delegates agreed that lithium-ion batteries with higher nickel content will dominate the market in the foreseeable future.

Despite increasing short-term use of lithium-iron-phosphate (LFP) and lithium-manganese-oxide (LMO) batteries in China, production and consumption of more advanced nickel-rich NCM 622 and 811 batteries are set to increase.

Industry increasingly moving away from cobalt

Social and supply issues are prompting the battery sector to reduce cobalt usage. Higher-nickel batteries are already seen as the next step to lowering cobalt content, but the metal is still needed to improve safety and energy capacity.

"The industry is getting a lot of pressure from end-users after child labor in the Democratic Republic of the Congo was exposed," Yuan Gao, chief executive officer at Pulead Technology Industry, said.

Social awareness is driving development of new chemistries in li-ion batteries, ESK Consulting lead consultant Jaime Alée added. NCM811 batteries (80% nickel, 10% cobalt and 10% manganese) are already in production; cobalt demand growth has receded, he added.

While lithium demand growth will more than triple over the next six years, cobalt usage in batteries will grow at a slower pace to 110,000 tonnes in 2025 from 50,000 tonnes currently, according to Pulead’s estimates.

Supply disruptions caused by political instability are also prompting substitution of cobalt with other metals in batteries.

"The industry would love to depend more on manganese than cobalt," McKinsey & Co leader for EVs Ken Hoffman said.

Chile is reshaping regulations

Chile’s ministry of mining is planning to unveil new regulations for lithium mining in the country that it hopes will attract investment in the sector.

Chile classes lithium as a strategic material, having been designated as such by the Augusto Pinochet administration in 1979. This is why SQM and Albemarle are in control of most domestic reserves, according to Chile’s Terrazas.

A new "national lithium policy" should garner interest in the mineral from state-owned Codelco and Enami. Both companies are already planning on exploiting existing resources.

"We already have a modern comprehensive mining code that protects investment," minister
Prokurica said. "We are aware of the boom in electromobility and its value chain, and want Chile to take part in it."

Fastmarkets-LME lithium price partnership cautiously welcomed

Market participants at the conference largely gave a qualified welcome to news that the London Metal Exchange and Fastmarkets have partnered to develop the lithium price benchmark.

Vivian Wu, president of Tianqi Lithium, the largest producer of lithium compounds in China and which has a 23.77% stake in SQM, said such a contract would be helpful to the company and the industry.

James Calaway, chairman at Ioneer Ltd, said it will be extremely constructive for the industry to have symmetrical, unbiased price discovery and forecasts. The price will provide emerging market participants with more transparency and a new financing and hedging alternative, he added.