More than 75 percent of the worlds lubricating grease is thickened with lithium hydroxide or lithium complex soap, making grease producers acutely dependent on this chemical. For more than a year, theyve endured high prices and snug supply due to competing lithium demand from the battery and electric car industries. And relief is not yet in sight, as a recent industry meeting heard.
One notable lithium hog is Tesla Motors, which is scaling up production of its new $35,000 electric car, the Model 3. Tesla plans to produce one million of these vehicles by 2020, and to do that, CEO Elon Musk has said his company essentially will need 100 percent of the worlds lithium supply. Other electric vehicle manufacturers, especially in China, are also bidding up the price of the white petroleum. The result? As reported last month in the Wall Street Journal, lithium carbonate prices rose 28 percent last year and took another 47 percent leap in the first quarter of this year.
Speaking to the European Lubricating Grease Institutes annual meeting in mid-April, Felipe Smith of minerals giant Sociedad Quimica y Minera (SQM) confirmed that lithium hydroxide supply fell short of demand in 2014 and again in 2015 largely due to booming demand from the battery industry.
Extra demand was seen mainly in China, which is switching to electric buses in response to strong government subsidies to bus and battery companies, Smith said. The Chinese industries reacted very quickly to the incentives and pushed their manufacturing capacity to meet demand for electric vehicles. By 2020, this demand may not still be as strong, but lithium chemicals in 2015 and 2016 were hit very strong. He believes the snugness will continue into this year and beyond, until new capacity is brought to market.
The earths crust contains lithium in abundance, but economically recoverable volumes have been tapped in only a handful of places: China, Chile, Argentina, the United States, Australia. Most production currently is in China, where mining companies dig out spodumene ore, separate the lithium and process it into a white crystalline powder: lithium hydroxide monohydrate (chemical symbol: LiOH-H2O).
LiOH is used in making batteries, lubricating greases, dyes, pharmaceuticals and other products, explained Smith, who is based in Atlanta, Georgia. He noted that SQM is the worlds largest lithium chemicals producer, serving up a quarter of the global supply of 155,000 metric tons a year. The two biggest members of the lithium chemicals family are lithium carbonate, accounting for 60 percent of the supply, and lithium hydroxide (22 percent).
Unlike producers in China, SQM does not mine lithium, but extracts brines that are rich in lithium bromide and other minerals from the vast Salar de Atacama salt flat in northern Chile. This brine solution is then processed to make lithium carbonate and lithium hydroxide, giving SQM an overall lower cost of production than its rock-mining rivals. According to company reports, SQMs revenues from lithium and derivatives came to $223 million in 2015, and it aims to increase its output and sales by more than 20 percent this year.
The grease industry traditionally has taken about 15 percent of the worlds lithium chemicals, Smith continued, but that share is falling as energy storage takes ever-bigger bites. In 2010, batteries took 32 percent of the supply; they now consume 50 percent; and by 2020 theyll require 57 percent. By then, SQM expects global supply of lithium chemicals may hit 220,000 metric tons a year, with only 10 percent going into grease. Even more bullish, Goldman Sachs foresees a need for over 500,000 tons by 2025, thanks to Teslas and other electric vehicles, as well as phones, tablets and other battery-operated electronics.
Also participating in the ELGI meeting was Daisy Wang, from the marketing department of Jiangxi Jiangli New Material Science and Technology Co. Her company has capacity to make 15,000 metric tons a year of LiOH at plants in Jiangxi and Sichuan, China. Even though it is currently sold out of all material, the company was exhibiting at the ELGI meeting as evidence that it has not abandoned the global grease market. We still need to keep contacting with our customers, because we hope to have next year more supply for the grease market, she assured.
Wang said her company is adding capacity as fast as it can, but Chinas urgent need for electric vehicles to ease its air pollution has absorbed all of Jiangli New Materials current LiOH output. Next year it plans to mine and process an additional 20,000 tons of spodumene, yielding 3,000 more tons of LiOH, and it hopes to source even more spodumene from Australia. Still, she believes it may be another 12 months before the market feels any relaxation of supply.
Meanwhile, Jiangli New Materials has upgraded all of its lithium hydroxide output to a battery grade purity, Wang proudly pointed out, rather than the industrial and non-dust grades it previously made. In the battery grade, for example, iron particles are limited to 0.0008 percent, versus the 0.002 percent allowed for the industrial grade.
This higher purity can be of benefit to grease manufacturers, who may reap some processing gains from it, observed Chuck Coe of the consulting firm Grease Technology Solutions, in Manassas, Virginia. But such purity comes at a substantially higher cost than grease producers have grown to expect, he conceded.
The shortfall in lithium supplies is causing pain among grease manufacturers everywhere, but the pain is especially acute in India, where 90 percent of grease is based on lithium. Indias grease manufacturers say lithium hydroxide has been priced beyond their grasp, as electric cars and consumer electronics devour every available kilogram.
According to Eltipu Sayanna, Ph.D., of Siddarth Grease & Lubes in Haryana, Indias grease manufacturers are totally dependent on imports of lithium hydroxide, having no native sources to draw upon. Up by six to seven times as much, the prices have skyrocketed over the past year, he told the ELGI, which met in Venice, Italy.
Especially pinched are grease suppliers with fixed-price contracts, who are forced to absorb the mounting cost and cannot pass it along to their customers, he indicated. Sayanna is president of the India Chapter of the National Lubricating Grease Institute (NLGI).
While sympathetic to Indias pain, SQMs Felipe Smith reflected that prices there, like elsewhere, are dependent on the global market, and prices in China have been crazy. So thats whats affecting India.
Others at the meeting explained that Indias grease manufacturers have tended to buy lithium hydroxide on a spot basis and bargain sharply for the lowest price. One observer suggested that they take a lesson from North American and European buyers, who assure reliable supplies by committing to long-term contracts with more than one seller. LiOH prices have gone up on those continents, too – but availability has not been an issue, he said.
The price of lithium has gone from 500 rupees a kilo before, to 3,000 and even 4,500 rupees now. The Indian manufacturers cant afford it, and worse, many are finding they cannot get it at all, at any price, this source remarked. Companies with fixed contracts to supply lithium grease are in serious trouble.
Anoop Kumar, of the grease company Royal Manufacturing in Tulsa, Oklahoma, said he is seeing Indias grease manufacturers begin to diversify their product slates away from lithium. Calcium sulfonate complex greases, aluminum complex greases and even exotics such as titanium complex grease – a soap thickener he invented almost 20 years ago as a young chemist at Indian Oil Corp. – are getting a fresh look in response to the shortage, he said.
Supplies were not supposed to be as tight as they are, Smith remarked to the ELGI attendees. We were expecting new players to be in the market today, but they either have never produced or are not performing as expected.
Some newcomers in China have missed their original production targets, he noted, and a brine project in Bolivia has not gone far. Three hopefuls elsewhere have seen their projects stall, too. The first, Galaxy Resources, has a hard-rock mine in Western Australia, but closed it in 2013 and sold its lithium carbonate plant in Jiangsu, China, to Tianqi Group. Galaxy reopened the mine earlier this year and is aiming to ship lithium concentrates to China this summer.
A second venture, Canadas RB Energy, never managed to produce and filed for bankruptcy liquidation in 2014. The third, Orocobre, has experienced a slow startup of its lithium brine operations in Argentina, but hopes to generate higher quantities in 2016.
Eyeing the global scene now, Smith estimated that China produced 40 percent of the worlds lithium supply in 2015; the countrys two dominant companies are Tianqi Group and Jiangxi Ganfeng Lithium, among others.
After China comes SQMs Chilean operations at 26 percent of the worlds supply, and Albemarle (20 percent). Albemarle in 2015 acquired Rockwood Lithium, which has operations in Chile and the United States. Albemarle also owns a minority interest in an Australian mine run by a Tianqi subsidiary.
Another longtime lithium major is FMC Lithium, which mainly supplies the market through brine operations in Argentinas Salar del Hombre Muerto; it also owns a spodumene mine in North Carolina.
Overall, were seeing a tight market with low investment levels, Smith commented. We believe it will last about six months to 12 months. Prices will be under pressure, but new volumes will come to market.
Although lithium historically has been less than 15 percent of SQMs turnover, its a key product and were giving it all the attention it deserves, he added. This year marks the companys 20th year as a low-cost lithium producer, and its current production capacity is 48,000 tons of lithium carbonate and 6,000 of lithium hydroxide. The mining giant is in talks with the government of Chile to expand production in the Salar de Atacama, and also is in a joint venture to develop a new $500 million brine project in Argentina. Construction is due to start in 2017 and production is due two years later; at 40,000 t/y, this operation is projected to have at least 30 years of productive life.
Long term, SQM forecasts that lithium supply and demand will come into balance. Although the grease market is unlikely to grow, and demand for batteries will continue to escalate, we are responsible and will continue to supply our grease customers, Smith asserted.