Lithium booms in the battle for electric-vehicle batteries
Lithium has a better claim than most commodities to be the “new oil.” It even comes with the latest geopolitical baggage (reports The Wall Street Journal).
9th September 2021
Prices for the lithium-based chemicals that go into rechargeable batteries have soared this year as electric-vehicle sales have revved up, particularly in China.
The average price for lithium carbonate, one of the two key compounds used by battery manufacturers, reached $US14,386 a tonne in August, according to Benchmark Minerals, up from $US6,124 in December.
The jump follows a slump. Carbonate prices peaked above $US17,000 in early 2018 before falling in a classic commodity boom-bust cycle. A wave of early investment flooded the market before electric vehicles really took off. Then came the pandemic, delaying the recovery.
Now a fresh cycle is under way, backed by flagship EV launches, huge battery-plant investments and bullish forecasts of lithium demand. In its base case, IHS Markit expects the size of the market to more than double by 2025 from the forecast 2021 level.
After a period of caution, producers are investing to increase output. Albemarle, one of the world’s largest lithium miners, raised $US1.5 billion from shareholders in February to fund its expansion. Diversified mining giant Rio Tinto wants a piece of the action: In late July it committed $US2.4 billion to a vast lithium project in Serbia.
Few seem worried that prices might once again take a dive, rendering such investments unprofitable. Lithium stocks are pricing in a massive, lucrative expansion of supply. Albemarle shares now trade hands for 51 times forecast earnings, roughly double their multiple a year ago. Its smaller rival Livent trades at 89 times.
“This isn’t a false dawn like the lithium boom of 2016, which was characterised by fast money. There’s much more patient capital coming into the supply chain now,” says Chris Berry, president of commodities advisory firm House Mountain Partners.
Lithium itself is abundant, but low-cost supplies are less so. Most is mined in Australia or high in the Andes. More important, there are bottlenecks in the conversion processes required to produce the usable chemical compounds. The plants take years to reach full capacity, which is one reason supply is likely to remain tight and prices high now that EVs are starting to take off.
There has been much hand-wringing in Washington that the strategically important lithium business is too dependent on East Asia. China dominates the crucial processing stages of the supply chain. In recent months Chinese producers Ganfeng Lithium and Tianqi Lithium also have overtaken Albemarle in terms of stockmarket value.
More battery-cell manufacturing is starting to emerge in the US, thanks in part to massive capital commitments from the likes of General Motors and Ford. Eventually, lithium processing seems likely to follow. For now, though, even Albemarle is still investing in Chinese conversion facilities, close to more established customers.
Another complication: Given the current semiconductor shortage and broad inflationary pressures, car makers are more laser-focused than ever on having multiple sources for key inputs. US manufacturers might want to talk up partnerships with local lithium suppliers: Tesla has a deal with Piedmont Lithium, which is scoping out a mine in North Carolina, and General Motors said in July that it was investing in a Californian lithium project. But they can hardly afford to exclude big Chinese players like Ganfeng and Tianqi from their EV procurement networks in the race to increase output and drive down costs.
A closer working relationship with China looks to be an inevitable trade off in President Biden’s big EV push.
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