Lithium Supply and Demand
- Global lithium supply is concentrated in relatively few locations; it is dominated by Australian hard-rock production (Greenbushes), and South American brine deposits in Argentina and Chile.
- The market is currently dominated by a small number of companies which control around 50% of supply; Albemarle (ALB US), which owns Rockwood Lithium, SQM (SQM US), FMC (FMC US) and Chengdu Tianqi listed on the Shenzhen Exchange.
- South American brine supply has risks of disruption, both geo-political and climatic. Supply in 2015 was disrupted by increased rainfall. Most recently, SQM’s Atacama core operations lease has been under threat from an arbitration case, where the lessor is seeking early termination of the lease.
- New supply ramp-up has also experienced challenges and delays, such as at Orocobre’s operations in Argentina.
- It is estimated that there is 200ktpa of advanced stage development capacity that could be brought online by 20207. This is far short of the predicted demand growth, which is likely to be favourable for future lithium prices.
- Hard rock deposits generally have 12 month construction periods; examples of new hard rock deposits coming on stream include Neometals’ Mt Marion project in Western Australia, expected to commence production in 2016.
- Lithium production from other sources, such as clay deposits in Mexico, carry greater developmental risk, but if successful would bring about a welcome addition to supply.
- Future supply diversification to bring new projects on stream in safe jurisdictions around the world is critical to the ongoing “green revolution”.
Factors Driving Demand – Key Points
- Pollution due to fossil fuel emissions kills millions every year8, and greenhouse gas emissions are causing rapid climate change. The world is thus increasingly switching to renewable energy sources, which due to their “peaks and troughs” in power production require cheap, efficient energy storage to ensure smooth delivery to the end-user. This requires rechargeable lithium-ion batteries.
- For the same reasons, an array of major companies, including Tesla, Apple, Google and all the largest car manufacturers including BMW, Nissan & Chevrolet are all betting on the electrification of vehicles, using lithium-ion batteries. The recent Volkswagen emissions scandal, with more such scandals expected in other automotive companies, will only put more pressure on vehicle manufacturers to go electric.
- A fast-growing global middle class is causing an enormous uptake of new smartphones, smartwatches and laptops. These require lithium-ion batteries.
Global EV Sales – a rapid rise
Tesla Motors 5 year share price: paradigm-shifting electric cars have created a very large valuation for a relatively small company
- Tesla’s Gigafactory, slated for 2017 opening, will produce more lithium battery power than is currently being produced globally, to meet demands from electric vehicles, energy storage for commercial and domestic use, and personal devices. This plant is expected to have c35GWh capacity equivalent to around 500,000 battery packs. The Gigafactory alone is expected to drive an additional 25-30ktpa in lithium carbonate equivalent demand.
- As well as Tesla, there are many other factories opening or expanding across the world. These include LG Chem, Foxconn, BYD and Samsung.
- The Tesla Powerwall, and similar competitor products, are set to disrupt and transform the old electricity grid.
- All major companies involved in rechargeable battery production are backing lithium-ion technologies, due to lithium’s unique properties.
Demand in 2015 – a Snapshot
- Estimated demand 2015: ~160,00ktpa LCE (2014: ~150 ktpa)
- Lithium market ‘value’: ~US$900 million
- Lithium market projected to grow to 500ktpa by 20259, which implies a compound annual growth rate of 11%pa.
Global Lithium Consumption Growth
- Time to construct and high capex of future brine production are creating opportunities for hard-rock projects
- Australia, as the largest single producer, is well-placed to play a significant role in future downstream/value-add production
- Lux Research forecasts that the energy storage market will grow to more than US$50bn by 2020, split between consumer electronics (US$27bn), transportation (US$21bn), and stationary applications (US$3bn), from US$35bn in 2015, a CAGR of c8%10.
Projected demand growth in various lithium applications, 2015-202511
7 VSA Capital, 2016
8 World Health Organisation, 2016
9 Kingsnorth, D., 2015
10 VSA Capital Battery Supply Chain Report, 2016
11 Kingsnorth, D., 2015