Are Global Lithium Prices On The Rise Again? An Outlook for 2020–21

The global lithium market is estimated to grow by around 8% to 10% annually from 2019 to 2024. Lithium is used in a wide variety of applications, such as energy storage, lubricants, grease and air-treatment. Lithium is often converted into its most useful compounds, lithium carbonate and lithium hydroxide. Lithium carbonate is primarily used in the manufacture of glass, ceramics and batteries, and in the pharmaceutical industry as a treatment for mental health ailments such as bipolar disorder.

However, lithium hydroxide is anticipated experience an increase in global demand due to its rising use in lithium-ion batteries that power the electric motors used in Plug-in Hybrid Electric Vehicles (PHEVs), Hybrid Electric Vehicles (HEVs) and Battery Electric Vehicles (BEVs). Currently, batteries constitute between 42% to 45% of the total demand, followed by glass and ceramics with 28% to 30% and greases and lubricants accounting for between 10% to 12% of the total global demand.

The Current Global Lithium Scenario

The world’s major lithium producers are Australia, South America, Chile and China. However, Australia, Chile and Argentina account for nearly 89% of global lithium production. Lithium is predominantly sourced from brines such as salt lakes and salt flats as it’s cheaper to extract as compared to hard rock ores and salt deposits. The supplier market of Lithium is consolidated. Some of the major suppliers are Jiangxi Ganfeng, Albemarle Corporation, SQM, Sichuan Tianqi, FMC Corporation, Avalon Advanced Materials, Critical Elements Corporation, Lithium Americas and Sayona Mining.

China is the biggest consumer of lithium — making up more than 55% of the global demand — and is the largest manufacturer of lithium-converted products. According to CRU, the Li-ion battery sector accounts for about 60% of the lithium demand in China, with EV and portable electronics as the largest demand drivers. Lithium prices plunged during the second half of 2019 due to a slowdown in automotive sales (including electric vehicles), a decline in subsidies and an oversupply of raw material.

Oversupply and Processing Bottlenecks Lead to a Price Drop

In 2019, BEV sales declined due to marketing issues coupled with discount offers for traditional cars over electric vehicles. This sales dip was exacerbated by a halving of subsidies introduced for electric vehicles and a surge in mine supply that led to an oversupply of raw materials. The oversupply situation was the result of price explosions that triggered high investments in global lithium projects over the past few years, which were themselves caused by strong sales of electric vehicles during 2016 to 2018. During that period, six new mining facilities for spodumene — an important feedstock for lithium hydroxide production — commenced production in Australia. However, the subsequent inflow of spodumene concentrate, coupled with delays in downstream conversion capacity coming online in China, resulted in oversupply and pulled lithium prices lower. This has now led to a halt in investments for new lithium projects.

The Lithium Outlook for 2020–21

According to the industry participants, the decline in lithium prices is expected to be short-lived as the imbalance between lithium spodumene supply and processing capacity bottlenecks in China are likely to be resolved soon. Further, the demand for lithium is expected to pick-up in the second half of 2020 due to the continued widespread adoption of electric vehicles. However, strong demand does not necessarily translate to high lithium prices, but it is expected to be corrected in 2020 with a potential price increase in 2021.

Buyers are recommended to build a strong relationship with suppliers to procure lithium and work on collaborations to establish a pricing mechanism that would ultimately benefit both the parties as a means to avoid pricing uncertainty in the absence of an internationally-recognized pricing mechanism. Also, buyers could be engaged on long-term contracts with suppliers to secure supply in a market dominated by a small number of large sellers. That way, lithium prices could be fixed during the contract period, which would help buyers and manufacturers to set up contract prices and thus enable the threshold price to be passed on to the buyer.

Sources and References

• https://s3-us-west-2.amazonaws.com/prd-wret/assets/palladium/production/mineral-pubs/lithium/myb1-2016-lithi.pdf
• https://www.greencarcongress.com/2020/01/20200112-cru.html
• https://www.oilandgas360.com/lithium-outlook-2020-the-lithium-decade-begins/
• https://www.spglobal.com/en/research-insights/articles/lithium-supply-is-set-to-triple-by-2025-will-it-be-enough