Low prices, projects deficit threatens lithium supply

By IM Staff
Published: Friday, 30 August 2019

Production from new lithium projects is expected to fall short of forecast consumption.

Projected output from a pipeline of new lithium operations worldwide may not be enough to satisfy soaring demand, delegates heard at Fastmarkets’ 11th Lithium Supply and Markets Conference in Santiago in June.

Major companies in Chile and Australia appear best positioned to increase capacity, with most new supply likely come from low-cost producers rather than marginal projects, while low lithium prices act as a drag on development capital and debt availability.

"The market seems to be in capital starvation. The question is [whether this starvation] is so deep that supply won’t be as great as expected [in future]," McKinsey & Co’s leader for electric vehicles, Ken Hoffman, said.

"New projects [will come] 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 require] low capex."

Chile intends to maintain its share of global output, at around 32%, while world production rises. The country’s ministry of mining estimates that projects around the world can bring global production to 1.5 million tonnes per year from 2027 onward.

"Chile is the main lithium producer in South America; we need to take the lead and sustainably increase output," Chilean vice minister of mining Pablo Terrazas said.

This stance may encourage original equipment manufacturers (OEMs) to get more involved in financing projects, filling the gap left by traditional lenders, according to Fastmarkets’ head of battery raw materials research, William Adams.

"Low prices and depreciated equity markets could mean there is not enough money coming into the industry at a time when it is needed," Adams said.

Chile’s ministry of mining has three different scenarios for world lithium demand. A base-case of "medium demand" would see consumption hit 1 million tonnes by 2027-28. In the bullish scenario, demand would total 1 million tonnes by 2024 and surpass 3 million tonnes in 2038. The bearish scenario contemplates demand of 1 million tonnes in 2034-35, reaching around 1.1 million tonnes by 2038.