Lithium Marketplace Review November 2017
During the month that Tesla completed the world’s largest lithium-ion battery in Southern Australia, we began to see a more detailed picture of the market being formed around the world’s aggressive push towards electric vehicles. Prices continue to climb, new technologies are on the horizon and major companies have laid down some solid plans and daring goals for the next few years.
Musk ambitiously guaranteed that his 129 megawatt hour battery would be installed within 100 days of signing the agreement, and spectacularly managed to complete the thing only 55 days after signing the deal on September 29th (Tesla had already installed half of the battery packs by this day). Furthermore, the delays with the output of the new Model 3 have apparently been resolved, meaning that output from the gigafactory should rise sharply before the end of the year.
China announced in April that it intended to drive sales of rechargeable vehicles from 500,000 in 2016 to around 7 million by 2025. In mid-November, 99.5% lithium carbonate prices resultantly surged to $25,283-$26,494/tonne, surpassing the April 2016 peak when a rush of speculators sent prices soaring. To cope with spiralling demand, an additional 370,000 tonnes of annual lithium carbonate equivalent (LCE) production capacity is scheduled to come online by 2020, although it is likely that reality will fail to live up to the fantasy to some degree.
Many companies are engaged with developing the next generation of lithium units, despite this, such technologies are unlikely to be available until at least 2020. Toyota has been working on a solid state lithium battery that they call a “game changer”. The successful commercialization of solid-state battery technology could be key to making EV cars affordable for the masses. In reality, however, the cost of producing a kilowatt hour of electricity must be halved before this could be realized.
Earlier in the year, the London Metal Exchange announced that it was working on the addition of contracts for cobalt sulphate, nickel sulphate and lithium carbonate or hydroxide as part of a massive overhaul project spanning years. The introduction of a lithium futures contract is not expected to hit the terminals until at least 2019, so investors are advised to seek exposure from companies involved in the extraction of lithium or the manufacture of its associated products.
As is always the case in young and hype-dominated markets, CAGR figures vary wildly, with some analysts calling 8% for the period 2017-2021, and others frantically shouting 43% from the rooftops. According to Global X research, the market should be worth a projected $36.5 billion by 2020, and this would require at least one new lithium mine to come on line each year through to 2025 in order to meet demand.
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South America’s salt flats leave behind lithium rich brine for harvest once evaporated, and the continent controls two-thirds of global reserves as a result; however, the region’s supply is underutilized, and the process is time-consuming when compared with spodumene focused operations in Australia, despite the lower energy requirements. Consequently, Australia ranks as the largest lithium supplier, with some 40% of total output even though it holds only 10% of global deposits.
China consumes over 40% of the world’s lithium but contains only 20% of total deposits, and so Chinese companies have been keen on Australian miners. Tianqi purchased Australian miner Talison Lithium (as well as 2% of Chile’s SQM, one of the world’s largest producers), and Great Wall Motor, which intended to produce EVs alongside BMW, took a 3.5% stake in Australia’s Pilbara Minerals to gain rights to the lithium product when operations commence in 2018. Additionally, the top EV manufacturer in China, BYD, is currently speaking with Chilean lithium producers about direct investment.
It’s extremely difficult to give a firm answer regarding what shape the lithium market will take over the next decade, but the near-hurricane levels of activity surrounding the long-ignored metal reveal that very few people indeed are preparing for anything other than a serious and prolonged boom period, and given that many governments have promised an end to petroleum fuelled vehicles within a matter of decades, it is highly likely that activity in the battery market will continue to escalate unabated.