According to S&P data, total cash costs of lithium concentrate operations increased 17.4% YoY to USD 2,529/t lithium carbonate equivalent (LCE) in 2021. And the battery-grade Lithium Carbonate EXW China price closed at USD 41,925 per tonne at year-end, an increase of 485.8% YoY.1https://www.google.com/url?q=https://www.spglobal.com/marketintelligence/en/news-insights/research/lithium-costs-up-in-2021-continuing-to-surge-in-2022&sa=D&source=docs&ust=1659005705941452&usg=AOvVaw0RNI7XWhGaV7LySJG01kIv
A manager at a China-based mining company told us that even though prices dipped in H1 2022, “the price drop is limited” and estimated that last year there was a lithium carbonate supply shortage of 30,000-40,000 tonnes. Based on import volumes and demand, the specialist expects a continued supply shortage this year that could be even more severe compared with 2021. With demand growing much faster than supply, our experts see lithium being in a tight spot for a number of years.
By way of background, lithium is not a rare metal. Found mainly in brine deposits in South America and hard rock deposits globally, it is mostly mined in the “lithium triangle” of Chile, Argentina and Bolivia. If other sources become difficult to access, lithium can be extracted from sea water.
However, the electric vehicle (EV) revolution is driving demand for lithium-ion batteries to a level that current lithium production timelines (around 10 years for a brine process) are struggling to meet. “I would think by the end of this decade you’d see about 80% of lithium demand overall accounted for from the lithium-ion battery, whether or not it’s small format and electronics or, of course, electric vehicles or grid-scale energy storage,” the executive at the NYC-based supply chain consultant told us.
Lithium is used in other applications too including glass, ceramics and pharmaceuticals, and there are in turn different types of lithium. Carbonate and hydroxide are the main ones used in batteries, and chloride and butyllithium are used in tyres. Our expert expects battery demand for lithium to grow at about 20% CAGR through 2030. Other applications are likely to grow in line with global GDP, we were told. Whether there is enough supply to meet this demand is the industry’s biggest question. Cost inflation – though not unique to lithium – is also spreading to reagents and the mining process. The widening supply-demand “mismatch” underlines the need for upstream investments to tackle a “timing challenge” that our experts say will last “for a number of years”.

One place to start addressing this is recovery rates – typically 50% and 60% for brine and hard rock respectively. “With cost inflation running rampant through the space, anything you can do to increase that recovery rate, even 1%, 3%, 5% or hopefully even 10%, really, really, really helps your economics,” our expert said. The global focus on ESG has also turbocharged efforts to use less water and fewer reagents in brine production. Of note, a “great deal of money” is being invested in direct lithium extraction (DLE). DLE can reduce crude lithium chloride or carbonate production down to “a matter of days as opposed to a matter of months”, we were told.
However, there are only two commercially viable DLE projects today including Livent, a brine operation in Argentina that still uses CO2-heavy evaporation ponds, and those targeting low-quality brines in western China. “The good news is that there is evidence of DLE being used commercially, but it’s pretty scant at this point in time and so the next generation is for start-ups or up-and-comers.”
Based on what is known today, DLE could represent 10-15% of total supply by 2030, our Interview suggests. But the ESG case is clear. We heard that a traditional hard rock lithium mine emits around nine tonnes of CO2 for every tonne of LCE and most brines emit around three tonnes of CO2 for every tonne of LCE. “The initial data that I have seen for DLE projects could go, and arguably does go lower than the three, maybe 1-1.5 tonnes of CO2 per tonne of LCE.” While some projects are claiming to be carbon free, our expert says it is a “wait and see” situation.
Recycling used lithium batteries is clearly another way to improve supply security. Although progress to date has been slow due to the high costs – as well as health and safety risks -involved, shareholder pressure to address ESG factors could accelerate programmes in the future.
The need for lithium is not going away and innovation will be required to generate more of it in shorter time frames. We were told that the biggest challenge for OEMs is that it is not just lithium they need to secure but other battery materials such as nickel, cobalt and copper – the costs of which are also rising. The executive at the NYC-based supply chain consultant also noted there has been a focus on lithium-ion phosphate batteries relative to nickel-heavy cathodes. “I don’t think that is going to negatively impact lithium at all, but with respect to some of the other metals and minerals utilised in batteries, that’s something that over the near term and longer term you’re going to want to keep an eye on as well.”
In April 2022, McKinsey said in a report that the lithium industry will be able to provide enough product to supply the lithium-ion battery industry thanks to technologies such as DLE and direct lithium to product (DLP).2https://www.mckinsey.com/industries/metals-and-mining/our-insights/lithium-mining-how-new-production-technologies-could-fuel-the-global-ev-revolution However, compounded by tough macroeconomic conditions, experts we have spoken to foresee a tight lithium market until at least 2025. The manager at the China-based mining company added that if the price drops to RMB 60,000-80,000 a tonne, some of the newer industry players may not be able to survive.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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