The lithium market represents an exciting story of new uses, surging demand, rising prices, and concerns around supply.
In past decades, the market was dominated by large, diversified chemical companies supplying lithium for little-known uses such as ceramics, pharmaceuticals and engineering applications. The recent introduction of lithium-ion batteries, however, transformed the market’s dynamics, speed, and ever-growing need – turning lithium into a metal that’s vital to massive worldwide markets.
According to the US Geological Survey (USGS), US consumption of lithium has increased by 50% since 2013.During that same period, lithium imports in the US have surged by over 55%. And while demand for lithium has been growing for years to power laptops, phones and other electronics, the next 5 years will bring unprecedented growth in demand due to 2 major factors:
- Power companies installing large storage systems to offset the inconsistencies of wind and solar power
- The rapid adoption of electric vehicles
In turn, the lithium market is expected to grow by over 285% from 2018 to 2027 (from 180,000 tonnes per year of lithium carbonate equivalent in 2018, to 700,000+ by 2027).
That rate of growth represents a huge market disruption and a significant opportunity for lithium exploration companies and investors.
The main driver behind the tremendous rise in the lithium market is a revolution in energy storage: lithium-ion batteries.To keep up with the growing demand for lithium-powered batteries, global battery-making capacity is expected to more than double by 2021.The highest profile story of lithium battery manufacturing is Tesla’s Gigafactory in Nevada, with planned production of 35 gigawatt-hours (GWh) of battery cells per year. And while Tesla’s plans call for even more battery megafactories, China’s plans are greater yet.
In China, crippling pollution is contributing to that nation’s ambition to become the global leader in electric cars. As a result, plans for additional factories will bring China’s battery-making capacity by 2021 to over 240% of Tesla’s Gigafactory
Price & Production
The market’s strong demand produces strong support for lithium prices. For large fixed contracts, the annual average US lithium carbonate price in 2017 was up 61% over the year before (USGS; Industrial Minerals). Strong demand is also driving increases in production. Global lithium production grew by around 13% in 2017 over the year before in response to increased lithium demand for battery applications.
In a bid to capture part of this market momentum, lithium production operations were under development in 15 different countries in 2017, while leading producers continue pursuing joint ventures in an effort to diversify their supply.
For manufacturers, the supply challenge extends beyond acquiring enough lithium, to also taking into account the quality of supply, and the security and stability of the supplier. When it comes to quality, not all lithium production is the same. Small discrepancies in the composition of the mined ore can result in significant differences to the end product and the price. Lithium supply security, meanwhile, has become a top priority for US and Asian technology companies.
To create a diversified and reliable supply chain, strategic alliances and joint ventures are commonly forged between lithium exploration companies and technology companies, particularly in the battery and vehicle sectors.
As well, offtake agreements, particularly between vehicle manufacturers and producers, serve to lock down long-term supplies of lithium, which creates greater security and further supports market prices.
In the same way that not all lithium production is the same when it comes to quality, not all producing regions are the same when it comes to stability.Bolivia, for example, has proven problematic due to concern among both lithium producers and offtake partners around resource nationalism.
And according to the American State Department, Bolivia’s investment regime suffers from “lack of legal security, weak rule of law, corruption and murky international arbitration measures”.
Since an offtake agreement is only as good as the enforceability of the contract, lithium supplies from countries that are stable and law abiding, such as the US, are favored by manufacturers.
The result is that certain countries in Africa and South America are less desirable due to political risk, whether in the form of export controls or tax and royalty regimes.
For all these reasons, the lithium market views the US as a highly desirable production source and region, which also enhances the attractiveness of Blue Eagle’s US-based lithium project.