Lithium is hot – again – although this time around the rally seems to have more resistance.
The market has exploded, with a benchmark more than doubling in 2021 and key prices in China hitting record highs. Frenzy is the lure of silver metal as a commodity of the future: it is one of the key components of rechargeable batteries used to power electric vehicles.
Lithium has already taken this path. Prices have more than tripled since the start of 2015 to hit a record high in March 2018, only to collapse again as production increased rapidly. Analysts and experts say this period is different because the electric vehicle boom has indeed started. The producers have also learned the lesson from the last crash and are now preaching discipline.
The result is that supplies are tight enough to force battery manufacturers to enter into long-term contracts that are more favorable to producers. Some even make the bold decision to buy mining assets. Ultimately, lithium prices could be so high that they would increase the costs of batteries and electric vehicles, just like the world needs more sources of clean energy.
“It’s kind of like miners’ revenge,” said Joe Lowry, an independent consultant known as Mr. Lithium for his decades in the industry.
“The suppliers are in the driver’s seat, and it will stay that way for a while,” he said.
The momentum means demand will likely outpace production for at least the next five years, predicts Morningstar Inc ..
Berry predicts prices could rise 15% by the next quarter to around US $ 30,000 per metric tonne in the spot market.
While metal makes up a small percentage of an EV’s battery cost, an extended period of higher prices for battery cathode materials – including lithium, nickel, and cobalt – will likely delay the point at which batteries EV will reach price parity with internal batteries. combustion engine vehicles, a crucial factor in the mass adoption that is necessary for a greener future.
“If there are any delays in the expected supply response over the next six months, I certainly don’t see any downside to the price of lithium,” Berry said. “There is a huge need for investment.
The story of lithium is similar to the dynamics that play out in a wide range of commodities, including oil and natural gas. Deprived of capital in recent years and faced with new demands from investors to focus on sustainability, the expansion of production of many commodities has slowed. Now supplies are tight just as demand is roaring.
There is no sign yet that demand – from those who can afford the high price of electric vehicles – will start to slow. Car rental giant Hertz Global Holdings Inc has just placed an order for 100,000 Teslas in the first step of an ambitious plan to electrify its fleet, the largest ever purchase for electric vehicles.
Global lithium consumption is estimated to quintuple by the end of this decade. BloombergNEF.
Supplies are expected to be so tight that they will trigger a wave of negotiations.
A number of lithium miner acquisitions have been announced in recent months, including a planned buyout of Millennial Lithium Corp. by the world’s largest battery manufacturer. Two Chinese companies have started a bidding war for the Canadian Millennial, which owns lithium assets in Argentina, with Contemporary Amperex Technology Co which ultimately outbid Ganfeng Lithium Co.
Of course, it is not known how long the new discipline will last among minors.
Albemarle Corp, the world’s largest lithium producer, and its partner Mineral Resources Ltd have just announced a plan to restart the suspended Wodgina mine in Australia to take advantage of soaring prices. The Chilean government is also offering new contracts to mine the world’s largest reserves of lithium, although it will be years before this production hits the market.
Current production moves cannot “overwhelm prices due to 12-month growth in demand,” said Lowry, the senior consultant.
“Electric vehicles are booming. The demand for batteries is booming. You don’t have a lot of new abilities coming anytime soon, ”he said. “You have a perfect storm right now. ”
by Yvonne Yue Li & James Attwood, Bloomberg
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