Electric Vehicles

Buy My Lithium Down, Sport
The Talison Lithium mine in Western Australia. The resource was to be a major earner for the state, but prices have been driven down by oversupply. Photo © Talison Lithium

Buy My Lithium Down, Sport

By Simon Johns - Dec 03, 2019

Western Australia’s lithium miners are feeling the pinch from reduced demand, while in South America, supplies of the strategic resource are becoming a political football. 

The price of Western Australian lithium has plunged recently as demand slumps from Chinese customers, while at the same time access to more resources are opened up in the state.

The number of hard rock lithium mines in Western Australia reached seven last year, and more licenses are being granted. This has placed a record amount of spodumene concentrate on the world’s market. At its peak, spodumene was trading between U.S. $900 and $1,000 per metric ton, but has since fallen to $540 per ton, according to a Reuters report.

About half of the world’s hard rock lithium concentrate, called spodumene – the precursor raw material for lithium carbonate and hydroxide – emanates from Australia and is mostly bought by China for processing. 

Meanwhile, there have been significant increases in brine-based lithium supply from Chile and Argentina, which is also driving prices down, said Chris Berry, president of House Mountain Partners, a New York City natural resources analyst focusing on energy metals supply chains, including lithium and rare earth metals.

China’s lithium brine producers flooded the market with low-quality material in 2018. This pushed the price of lithium inside the country, which is typically lower than the ex-China price, lower still, dragging the rest of the world with it. 

“With lithium growing at a compounded annual growth rate of about 18% to 2025 and significant difficulties involved with bringing ‘battery grade’ lithium chemicals to market at scale, we are likely at or close to the bottom here.”
— Chris Berry, President, House Mountain Partners

In the near future, prices will continue their downward slope, Berry predicted. “I wouldn’t be at all surprised to see lithium prices fall lower, but it would likely only end up being a temporary event,” he added. “With lithium growing at a compound annual growth rate of about 18% to 2025 and significant difficulties involved with bringing ‘battery grade’ lithium chemicals to market at scale, we are likely at or close to the bottom here.” 

Berry expects the market will continue its declining trend until 2021, followed by a long-term price of approximately $10,000 to $11,000 per ton for select lithium chemicals based on the demand for electric vehicles.

The price decrease will not have much impact on industries that require low-quality lithium. However, it is hard to predict the impact on the EV industry. Industries that use lithium will likely grow at global GDP growth rates of 2% to 3% annually, according to Berry. Meanwhile, forecasting demand growth for EV and energy storage batteries is a harder prospect as they are growing at orders of magnitude faster. 

The lithium supply chain must tackle how it can supply battery-grade material to a growing market that has never seen so much change in such a short period of time, he said. 

“I think that if EV penetration rates hit below their targets in the future, it won’t be because consumers didn’t want to drive EVs; it will be because the lithium-ion supply chain couldn’t adjust fast enough and can’t supply ample battery-grade materials of lithium, cobalt and materials,” said Berry.

In an effort to supply ample battery-grade materials, companies are signing deals with several states. Last year, Bolivia’s state-owned lithium company Yacimientos de Litios Bolivianos and Germany’s privately owned ACI Systems agreed to develop Bolivia’s Uyuni salt flats and build a lithium hydroxide plant for manufacturing EV batteries. However, protesters in the country blockaded streets, demanding the government increase royalties from 3% to 11%. The cabinet of Bolivia’s President Evo Morales cancelled the contract and political chaos ensued, ending in the president’s ousting.

In neighboring Chile, Russia’s Uranium One Group, a subsidiary of Russian state nuclear company Rosatom, bought a controlling stake in a lithium project at Chile’s Atacama salt flat from Wealth Materials Ltd. Under the deal, the Russia-controlled company has the option to purchase upwards of 51% of the project. 

The deal could be a sign that Chile is back on track in finding global partners. In March 2018, the Chilean government said it was partnering with South Korea’s Samsung to build three plants to manufacture battery parts for EVs. But the deal soon soured when Chile, the world’s number-two brine lithium miner, failed to deliver the “bountiful, bargain-priced lithium it had promised in a fast-changing market,” according to regulatory filings. The new center-right president, Sebastian Pinera, is pushing state and private investments to double Chile’s current lithium production of 230,000 tons annually by 2023.

Chile’s government is also working to clean up policies that mining companies have called confusing and uninviting. As of mid-2019, the government had not permitted a new lithium mine in the country since 2014, when prices and production were booming. The lack of a director, Chilean business leaders said, had driven prices down drastically. Chilean company SQM, the second-largest producer of lithium in the world, China’s Tianqi Lithium and Albemarle all reported significant declines in their Chilean operations. 

Berry said lithium is a very political topic in Chile, and the spats that Albemarle and SQM have had with Chile’s economic development agency CORFO are cases in point. A new royalty regime in place on lithium exports was a main issue in the way of getting a deal done, but everything has now been resolved, and all parties are moving forward despite a very high tiered royalty regime, he said. 

Chile and Argentina have some of the best lithium assets in the world, and it is incumbent on the political class in each country to not “kill the golden goose” and instead welcome foreign direct investment in a fast-growing lithium industry, Berry said.