Lithium at $70,000 per Tonne. Where to From Here?
Lithium has become one of the hottest commodities among the industrial minerals, with prices having doubled since the beginning of 2022, and increasing 5X since 2019.
The demand-side growth implied by the unified momentum toward automotive electrification while supply-side sources develop at a decidedly slow pace is the data point behind the surge.
It is anticipated that half of all vehicles manufactured in the world will be electric by 2035.
Adding to the commodity price momentum is the now-entrenched inflation that was the direct outcome of central bank monetary and interest rate policy over the last two decades.
The price of lithium and other battery metals will be extremely volatile for the foreseeable future.
Other commodities, like tin, whose price has doubled to its current level of 42,000 per tonne, might see exponential moves higher as supply/demand dynamics exert their irresistible charms on these lesser appreciated – but no less crucial – battery ingredients.
Geopolitical volatility a la Russia’s rape of Ukraine is certainly not helping. But when that situation finally settles down, will it have any effect on these prices?
Numerous auto manufacturers have stipulated plans to have the majority of their products, if not all, electric within the next several decades.
Volkswagen deliveries of battery-electric vehicles (BEVs) almost doubled in 2021 to more than 450,000 units, and Ford is partnering with Volkswagen on the Modular Electric Battery toolkit, which is expected to drive penetration of electric vehicles substantially.
CATL, the world’s largest lithium-ion battery producer with 158 GigaWatt hours (GWh) of production currently, has just announced its intention to build a US$5 billion battery plant in North America that would add another 80 GWh of capacity.
LG Chem and Stellantis just announced a $5 billion battery plant in Windsor, Ontario.
That suggests a minimum requirement of hundreds of thousands of tonnes of lithium, copper, nickel and graphite in the immediate future, as well as significant increases in cobalt and manganese.
In fact, one such company I have met with has engaged with a related company to find ways to lock in lithium supply into the distant future through investment in late-stage development projects.
Presently, 52% of the world’s lithium comes from hard rock sources, primarily from Australia. But South America – in particular, the “lithium triangle” in the high desert straddling the Chilean/Argentinian border, is thought to host in excess of 600 million tonnes of lithium in sub-surface “brines”, where volcanic activity has concentrated lithium in subterranean aquifers.
The current default mode of lithium extraction from brines is through evaporation in surface salt ponds, which are vast shallow artificial traps that have tremendous impacts on local wildlife and the available agricultural water supply.
This extraction method is falling under greater scrutiny – especially in Chile with the recent election of leftist president Gabriel Boric, who has inferred that Chilean contracts will potentially be renegotiated to favour the Chilean people.
Supply-side is Slow to Add Capacity
There are dozens of companies around the world now exploring for hard rock, brine, and clay sources of lithium. Petroleum operations have significant structures of lithium-charged water that have been produced and stored underground as oil and gas were extracted.
Though lower in grade (typically 75 – 200 ppm), they are nonetheless potential sources of lithium if Direct Lithium Extraction (DLE) technologies can be developed.
Currently, 10 – 15 different DLE companies are racing to process economic quantities of lithium at source, but thus far, none have progressed beyond the pilot stage, and none have been determined to be economical at scale.
Depending on the lithium content of brines, quantities in the neighbourhood of 50,000 litres per hour would have to be processed to achieve 20,000 tonnes of lithium per year, the baseline number for a commercially sustainable operation.
With access to water in the Argentinian Puno a contentious issue, it is conceivable that only DLE approaches can see those remote operations become part of the international supply equation.
And with Chile tightening the rules around water usage and contamination, DLE is again looked to as the solution to this problem.
Hard rock sources of lithium, which occur primarily from pegmatite dykes containing spodumene, take just as long to define and permit as brines, which typically is at least five years.
So, for the time being, the demand side will continue to outpace the lithium supply, and that only implies higher lithium prices, even from here.
Alternative Chemistries Could Kill Lithium Eventually
When the cost of lithium-ion batteries increases to the point where the consumer tolerance cost threshold is surpassed, there will likely be a retreat in the uptake of electric cars. This forward-thinking is what in part is keeping the oil price high.
But this also drives innovation.
Graphene Manufacturing Group (CVE:GMG, OTCMKTS:GMGMF) is developing a graphene-aluminum ion battery that is presently in the pilot production phase that could conceivably compete with and eventually replace lithium-ion batteries.
They are cheaper to produce, have a higher power density, and faster charge time with none of the flammability risk associated with lithium batteries.
Though that could take another couple of years to reach commercial production levels, the development cycle of such technology now is a fraction of the 20 plus years it took for the original lithium-ion battery to come to market in the Sony walkman.
In the meantime, there will be a lot of money made on lithium mines and technologies.
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