Elemental forces

Lithium: used to make batteries

Go to a Chinese restaurant offering fresh seafood and you may well find that there aren’t any prices on display. That’s because the restaurateur plans to gauge how much you’re willing, or able to pay: the local price or the tourist price?

The Cantonese slang for this kind of price gouging is “seafood prices” and in recent weeks media in southern China have used it to describe what’s been happening in the lithium market. The silvery white metal is a key component of electric vehicle (EV) batteries and a host of energy storage devices, which have been experiencing explosive demand. Prices for lithium have consequently been pushed up to record levels.

In January last year, lithium carbonate was quoted at Rmb77,000 ($12,101) per tonne. The price had already surpassed Rmb300,000 per tonne as of this month and battery makers are now anticipating prices to spike further in 2022.

According to Rio Tinto, the EV industry alone is on course to require three million tonnes of lithium a year by 2030, up from 350,000 tonnes today. As a result, industry experts believe the supply-demand imbalance for the metal will persist until the middle of the decade, when more production capacity comes on stream.

The increase in the raw material’s cost may soon spill over downstream and push up battery and EV prices. Notwithstanding the impact of new battery technologies or more efficient manufacturing processes, either EV prices will have to rise, or manufacturers will be forced to scale output back just as they did in 2021 because of semiconductor shortages.

Lithium miners have been trying to address the shortfall by bidding for new resources and trialling different sources of the metal such as geothermal brine and sedimentary clay. Haitong Securities opines that the world’s largest producer, Shenzhen-listed Ganfeng Lithium, has done a great job expanding across the globe amassing 18 separate resources, which have an extraction capacity of 36 million tonnes over the course of their lifespan.

These resources helped China to retain the overall top spot in BloombergNEF’s 2021 Global Lithium-ion Battery Supply Chain Rankings. It led in three out of five categories: raw materials; manufacturing; plus end user battery demand. The US and Europe are racing to catch up and build their own end-to-end supply chains. The US, for example, rose from sixth to second overall in the BloombergNEF ranking in 2021. However, this improvement was largely due to soaring battery demand. The US market still only ranks 11th in terms of raw materials and fourth for lithium production.

Chinese firms have been quick off the mark to secure lithium supplies in tandem with the country’s leading role across the EV sector. But the competition is becoming more intense. Much of last year’s battleground for lithium concerned South America. Argentina, Bolivia and Chile hold 58% of known lithium reserves and produced about 30% of 2021’s supply.

Zijin Mining is now in the final stages of seeking regulatory approval for the purchase of Canada’s NEO Lithium, which has Argentine assets. But Chinese companies aren’t getting everything their own way. In bidding for a second Canadian listed entity with Argentine assets – Millennial Lithium – CATL first pipped Ganfeng Lithium, but then lost out to Canada’s Lithium Americas in early November. Chile has also just elected a new president – Gabriel Boric – who has pledged to reduce domestic inequality by creating a state-owned lithium company for the benefit of Chileans rather than foreign interests.

Chinese producers are also increasingly turning their attention to Afghanistan, which may have the world’s largest untapped reserves, and Africa. In late December, Shanghai-listed Huayou Cobalt agreed to acquire Prospect Lithium in Zimbabwe for $434 million. One month earlier, Chengxin Lithium also secured a 51% stake in Zimbabwean producer Max Mind for $76.5 million. Guotai Junan estimates that China imports about 70% of its lithium needs. It remains home to about 4.5% of known reserves (concentrated on the Tibetan plateau), just below Australia on 6.3% and Chile on 9%.

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