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Lithium: What’s the market talking about?

Editor: Charlotte Radford

When Fastmarkets held its major digital conference about lithium supply & markets in late-October, its reporters captured highlights of the event. The supply chain from mining through to recycling, investments, market fundamentals, prices and price risk management were covered and here we bring together a summary of the key points. November, 2020 by Davide Ghilotti, Michael Greenfield, Dalila Ouerghi, Cristina Belda, Carrie Shi and Charlotte Radford.

First published in the November/December 2020 issue of Metal Market Magazine

Editor: Davide Ghilotti

Achieving timely investments into capacity expansions will be a leading challenge for the lithium industry in the coming years to meet the expected growth in demand. Identifying the right timelines to deploy capital to increase conversion capacity available for lithium compounds will be crucial to ensure future supply will meet the rise in demand from the battery sector, executives at three major lithium producers, Albemarle Corp, SQM and Livent, said during the opening panel.

“As the market starts to recover in demand, the challenge will be meeting that demand, and adding that capacity fast enough [to meet demand growth],” said Tina Craft, Albemarle’s chief commercial officer and vice president of commercial operations.

While the lithium market has been going through a prolonged bearish cycle in 2019 and 2020, characterized by oversupply and low prices, the outlook remains one of long-term growth for the sector, fueled by the push towards electromobility in both Asia and the West.

Lithium demand is expected to grow to about 900,000 tonnes LCE (lithium carbonate equivalent) per year by 2025, according to William Adams, Fastmarkets’ head of battery raw materials and base metals research, compared with a consumption of 300,000 tonnes estimated for 2020.

Low prices had previously prompted producers to hold their expansion plans but, against the expected long-term bullish outlook, these would have to resume to follow the market growth.
The availability of capital needed for such growth will be a determining factor in this sense, according to Livent’s chief commercial officer, Walter Czarnecki. “Total demand for lithium is set to triple in next decade. That’s $10 billion of expansion capital needed, from an industry generating $3 billion today,” Czarnecki said.

The ongoing Covid-19 pandemic and its widespread effect on the performance of national economies and supply chains adds to the difficulty in outlining future business strategies and setting out timelines for investment. This translates into an issue of timing for deploying capital into new processing capacity. “You have to make those decisions 18-24 months before a plant comes online: [you have to be] able to see when demand starts to pick up and have confidence in the right economics to invest in lithium supply,” Craft said.

“The resources are there. It’s about having the economics in place that support the build-up of your conversion capacity.”

Expansion plans on hold

Czarnecki spoke about how Livent suspended all deployment of growth capital for expansion, citing the bearish lithium price environment during 2019-2020 as a fundamental consideration in driving this decision. Back in February, the company announced it was delaying its planned schedule of expansion due to low prices.

Albemarle responded to the falling prices and overcapacity in a similar way. “In 2019 we responded [to the weak pricing outlook] by reducing some of our conversion capacity plants we thought we were going to bring online after 2021. This has been slowed out [further] with Covid-19,” Craft said.

Albemarle announced last year that it was postponing the works at its Salar de Atacama facilities in Chile, La Negra III and IV.

SQM has so far maintained its scheduled expansion plan – aiming to reach an output of 120,000 tonnes of LCE in 2021. “We are confident about the demand trend. Although the first half of the year was very weak, in the last few months we’ve seen better demand. Europe EV sales are showing a good trend. All in all, we estimate demand for 2020 would be similar to 2019,” SQM’s commercial vice president for lithium, Felipe Smith said, citing some applications showing growth such as portable devices and e-bikes in China.

 

Editor: Michael Greenfield

Lithium-ion battery recycling activity could increase to 2.6 million units between now and 2030, and could return thousands of tonnes of key raw materials to the battery supply chain.
A total of 46,300 tonnes per year of cobalt, 40,000 tpy of lithium, 27,000 tpy of manganese and 125,000 tpy of nickel could be efficiently recycled to a quality high enough that the materials could be re-used in battery cells, Ajay Kochhar, president and chief executive officer of Li-Cycle, said during the online event held October 26-28.

The US-based battery recycling company was already processing “thousands of tonnes of lithium-ion batteries” and returning product to the supply chain, he said. This was “meeting the needs of high purity lithium-ion battery customers” including automotive sector companies.
“We see a robust pull for nickel sulfate, cobalt sulfate, lithium carbonate, manganese sulfate and graphite from the supply chain, including battery manufacturers, and portable electronics and electric vehicle manufacturers,” Kochhar said.

But it was unclear what disruptive effect these volumes of recycled materials might have on the draw for primary supplies of battery raw materials.

Evolving chemistries

Speakers on this year’s battery panel agreed that, excluding some currently unknown disruptive technology, lithium would be a mainstay of the mobile battery unit for the foreseeable future. It was questionable what percentages of other materials such as nickel, cobalt and manganese these cells would require. The cost may affect the desirable amount of each raw material in the battery cell.

This has been notable in the cobalt market, where a price rally to a 10-year high of $45 per lb in April 2018 spooked some in the battery supply chain, while questions over the ethical sourcing of cobalt prompted some automotive companies to look at cobalt-free batteries.
Fastmarkets’ price assessment for cobalt standard grade, in-whs Rotterdam, was $15.50-15.95 per lb on Friday October 30. This was up from a low of $13.75- 14.05 per lb in late July, with the price rising as economies recovered from Covid-19- related lockdowns.

“[The battery supply chain] will remain a diversified field in terms of battery chemistries, and that is why [electric car manufacturer] Tesla is hedging bets on a variety of chemistries, because the future is uncertain,” Chloe Holzinger, senior analyst with IHS, said.

“Automotive original equipment manufacturers [OEMs] will use different cathodes and batteries from different suppliers, so they can address different types of automotive industries, and to protect themselves against potential volatility [in raw material supply],” Holzinger added.
Cobalt-free batteries will certainly be part of a suite of products offered by electric vehicle producers, although cobalt will remain a key part of products which will be used for longer driving ranges – nickel, manganese, cobalt, (NMC) batteries.

While cost can dictate the level of each material in the battery pack, the performance of the battery can influence this too. Enhancing the energy density in the pack is an area of development for the battery makers and consumers. Moving the battery from 260 Wh per kg, which is typical of what is seen on the market today, to 435 Wh per kg by 2022-23 is a goal for solid-state battery developer Solid Power.

This can be done by thinning the separator material, increasing the loading of the cathode or the ratio of NMC metals in the battery within an NMC 622 or NMC 811 battery, according to Dean Frankel, who leads supply chain development at the US-based company. Performance was also being targeted, he said, with a projection for 1,200 battery cycles with 80% capacity retention. 80% capacity retention. Michael Greenfield

Editor: Dalila Ouerghi

Lithium spot prices are starting to change direction upward but it will take time for a rebound across the whole lithium complex, Fastmarkets head of battery raw materials research and base metals William Adams said during a panel discussion.

“We’re starting to see a move up [for spot prices] and by the end of next year will start to see all [lithium] prices moving up,” said Adams.

Lithium is a key ingredient in the manufacture of batteries for electric vehicles (EVs) and energy storage systems (ESSs), and lithium demand for both uses is expected to soar in the coming years alongside the shift to greener economies.

Prices for lithium surged over 2016 and 2017 in anticipation for this incoming demand, but capacity expansions outstripped demand growth between 2018 and 2019, triggering a slump in prices. The outbreak of the Covid-19 pandemic at the start of 2020 added further bearish pressure.

Yet in the key consuming market of China, the price of lithium carbonate has broken out of stalemate in recent weeks, with more producers insisting on higher offers due to increased orders from downstream cathode producers.

Fastmarkets’ weekly price assessment for lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range, exw domestic China was 39,000- 41,000 yuan ($5,651-6,097) per tonne on Thursday October 22, posting a second consecutive weekly increase from 37,000- 41,000 yuan per tonne on October 8.

During the same panel discussion, Tianqi Lithium sales director Ron Mitchell said the demand outlook from the EV sector is looking positive and his prediction for the fourth quarter of 2020 looks equally positive. On the impact on lithium prices of a possible second lockdown across countries due to the Covid-19 pandemic, Mitchell said: “The impact of Covid has been varying so far and many companies have showed resilience, at the moment supply chains remain open and distribution channels remain open.”

Mitchell added that the only threat from a second wave of lockdowns could be on downstream production, which could have a short-term effect on prices, but he did not see it as “a lasting impact.”

Supply build-up

Despite a positive demand outlook, any increase in lithium prices could be capped by a current build-up of inventory along the supply chain and the presence of idle capacity, conference delegates heard.

“The positive news is that demand [from the EV sector] is picking up very quickly but on the other hand [lithium] prices in China had bottomed out already and we have to consider they were at a very low level below marginal costs of production so the [increase] is a correction,” Daniel Jimenez, partner at Chile-based mining consultancy firm IliMarkets said.
“We still have a big disparity between prices in China and outside of China and we have a lot of supply coming into the market from SQM [Sociedad Qumica y Minera de Chile] for example,” he added.

“So in terms of what is going to happen in the next few months it is probably a convergence of prices in China and outside of China as we are still in an oversupplied market. The impact of Covid-19 has certainly been negative but the market was oversupplied already before the pandemic had started,” he warned.

Chilean lithium producer SQM has capacity to produce 75,000 tonnes per year of lithium carbonate equivalent (LCE). It previously announced expansion plans to allow it to reach production levels close to 200,000 tpy of LCE in the long term.

The lithium market has fundamentally changed and the customer landscape has also changed significantly, leading to a higher focus on price transparency alongside considerations on supply security, Mitchell said on the topic of price evolution in the lithium industry.lithium industry.

 

Editor: Cristina Belda

The development of lithium hydroxide facilities is a priority for Australia’s renewed critical mineral strategy, said Jessica Robinson, head of the Australian government’s Critical Minerals Facilitation Office. “We are already the largest producer of lithium and we have the second-largest reserves in the world… Now we are looking to move further down the supply chain,” she added.

The country produces about half of the world’s lithium from hard rock lithium concentrate, called spodumene, which is converted into lithium hydroxide for battery manufacturers and is processed mostly in China. The Australian government is looking to attract investment along the supply chain for the critical minerals sector, not only in exploration and extraction, but also in the production and processing stages.

On October 20, the federal government released the Australian Critical Minerals Prospectus 2020, which outlines more than 200 potential investments in 24 critical minerals and rare elements, including lithium, cobalt, manganese, antimony, tantalum, tungsten, vanadium and niobium.

“Part of the rationale to take extra steps [in the critical minerals strategy] is real appreciation of the vulnerabilities of some of the supply chain, lithium being a key item,” Robinson said.

Lithium hydroxide consumption is on the way to accounting for 60% of the market and, by 2028, will account for nearly two-thirds of lithium supply, according to analysis from advisory firm RK Equity.

To meet the expected growth in demand, Australia has five operating lithium producers, and three mines in development in Western Australia – two for spodumene and one for lithium hydroxide. Robinson expected these to be running by 2022. These projects are the Finniss Lithium Project, owned by Core Lithium; the Kathleen Valley lithium-tantalum project, owned by Liontown Resources; and Mt Holland, owned by Covalent Lithium with an offtake agreement with LG Chemicals.

Robinson also pointed out the complexities of the lithium market, which has been going through a prolonged bearish cycle in 2019 and into 2020. This was characterized by oversupply and low prices, which have been a deterrent to attracting further foreign investment over the past year.

“The production of lithium was scaled back in recent times and Australian producers have been affected by that. [There has] been a pullback in capital expenditure and public confidence that [has made] investment and cash injections into these projects more difficult in recent times,” Robinson said.

“But there is a huge expected uptake, with lithium producers expecting to increase their exports by 75% in 2022, and demand will continue to grow exponentially,” she added. About 920,000 tonnes of lithium will be required by 2025 to meet forecast demand from the energy storage sectors, according to data from Fastmarkets’ battery raw materials research team.

Robinson also noted the benefits of lithium spodumene in being adaptable to changes in market dynamics. “The benefit of hard-rock production is the flexibility to scale up and quickly bring in production in around two or three years’ time, versus seven to ten years in brine production,” she said.

“Spodumene facilities can also be turned on and off relatively quickly, which means that, in terms of Covid-19, operations can quickly adjust to market changes,” she added.

To promote investment, tax incentives in the resources sector are worth as much as $2 billion for activities across the board, and are also open to foreign countries, Robinson said.

Australia has finalized agreements so far with the United States, India, South Korea, Japan and Canada in an attempt to support projects and to develop critical minerals and rare earths. “We are also doubling down our engagement with the UK, Japan, South Korea and the EU,” she said. “We are committed with a range of countries to helping to diversify and secure global supply chains.”

 

Editor:  Carrie Shi

China is currently the key player in the lithium-ion battery supply chain and will remain dominant for the next five years, according to the head of energy storage at Bloomberg New Energy Finance.

Because China has the biggest lithium-ion battery manufacturing capacity and has greater direct and indirect control over most raw materials for batteries, it will maintain its leading role in the lithium-ion battery supply chain from now until 2025, noted James Frith, head of energy storage at Bloomberg NEF. The organization had published a lithium-ion battery supply chain ranking showing each country’s position in 2020 and where it will be in 2025 based on its current development trajectory in several key sectors, including raw materials, fuel cells and components, the environment and demand.

Among 25 countries ranked in the battery supply chain, China is expected to remain the global leader until 2025 – not only because it has the largest industry overall, but also because it has the biggest end-user market, according to Bloomberg NEF.

Japan currently ranks second in the lithium-ion battery supply chain and is also expected to maintain its position through to2025, Frith said. South Korea comes third in 2020, but by 2025 it will have fallen to eighth due to a “poor environmental score,” Frith said, largely due to its very high power-transmission grid emissions of about 400g of carbon dioxide per kWh produced. Most other countries are reducing their grid emissions to become cleaner and greener, Frith added.

Sweden is expected to rise from tenth now to fourth in 2025, while Germany, France and Finland are all in the top 10 from 2020 to 2025 because of strong support from their governments in the new energy vehicles (NEV) sector.

The United States, meanwhile, is expected to move up from sixth place in 2020 to third in 2025, while the other top-10 countries are the United Kingdom and Canada. “In the US, [while] there is not as much government support as in Europe… the country will move up the rankings because so many manufacturing plants and component manufacturing [facilities are] being built there, and [the country] also has some [of the key] raw materials,” Frith said.

The ranking for the lithium-ion battery supply chain is mainly to better understand that supply chain and to gain some insight into where future opportunities might lie.

Frith said the world’s total lithium-ion battery manufacturing capacity was expected to be 525 GWh by the end of the year in 2020, with 78% of that manufacturing capacity located in China. By 2025, however, the total capacity for making lithium-ion batteries will have more than tripled to 1,798 GWh, and China will still have the majority of manufacturing capacity by then – although its share is expected to fall to 68%, with Europe likely to be making the most inroads in terms of increasing its market share.

In addition to its dominance in battery production, China has a major influence in the mining and refining of battery raw materials. China has greater direct and indirect control over the key battery raw materials than other countries and is the only country with direct access to captive supplies of all the key materials – including graphite, lithium, nickel and cobalt, among others – although only tiny amounts of some of these products are to be found in China.

Editor: Charlotte Radford

Robin Martin, head of market development at the London Metal Exchange, said that the lithium market has grown to a stage where it can support a futures contract, especially in the context of significant price moves in recent years and forecasts of further growth.

“In terms of size, [lithium] is now at a level where it can support an actively traded contract. We’re expecting this market in physical terms to grow by an order of magnitude over the next 10 years so that gives us ample runway, but we’re at critical mass it terms of size today,” Martin said during an interview at the conference.

Lithium production is expected to grow to 430,000 tonnes in 2021. Demand will grow to 345,000 tonnes next year, compared with an expected 285,000 tonnes this year, according to data from Fastmarkets’ battery raw materials research team. About 920,000 tonnes of lithium will be required by 2025 to meet forecast demand from the growing electric vehicle (EV) and energy storage sectors. Martin noted that it is still a fairly small market today but one that is growing rapidly and with a high degree of price volatility.

In mid-October, the LME said that it could launch its lithium contract as early as the first half of next year, depending on market readiness, to be cash-settled against Fastmarkets’ price assessment for lithium hydroxide monohydrate, min 56.5% LiOH.H2O, battery grade, spot price, cif China, Japan & Korea.

A single contract can be used for hedging lithium exposure across the value chain, Martin said, even though different lithium grades and compounds are used according to consumer certification. “Concentrating liquidity into a single contract is always the right approach, especially in a fairly nascent market as we have with lithium. If you look at the price histories across the different markets of lithium then almost invariably you find very high levels of price correlation, so having a single lithium contract is almost certainly going to be a fantastic proxy pricing mechanism for anyone exposed up and down the value chain,” Martin said.

Fastmarkets’ assessment for lithium carbonate 99.5% Li2CO3 min, battery grade, spot price cif China, Japan & Korea stood at $6-7.50 per kg as of the October 22 assessment, down 32.5% from $9-11 per kg a year ago. The lithium hydroxide monohydrate 56.5% LiOH.H2O min, battery grade, spot price cif China, Japan & Korea is down 25% at $8.50-9.50 per kg as of October 22 from $11-13 per kg a year ago, according to Fastmarkets data.

Lithium use by battery manufacturers is subject to certification processes and investments are made in production processes built around particular specifications, but that does not limit the use of flexible pricing or development of risk management tools, Alex Harrison, editorial and pricing director at Fastmarkets, added.

“The question about specification is one that exists in every market… there’s a bit of a false dichotomy in this debate on specialty product versus commodity,” Harrison said. “Clearly lithium is a specialized commodity of sorts but all commodity markets require specifications for their material – look at iron ore, copper concentrate, manganese ore, primary aluminium. Pricing in those markets isn’t determined solely by the LME, but by the other elements that are in the material by the impurities, the origin, the producer and so on,” he continued.
“There’s no suggestion that every kilogram of lithium should change hands at exactly the same price. What we’re looking at is prices that are representative, carefully defined, [and that] buyers and sellers can use whether there’s a premium or discount with their own counterparty,” Harrison added.

The lithium market is some time away from requiring individual contracts to offset price risk in different products along the value chain, delegates heard.

“Once you have a very mature market as we have with primary aluminium, then it makes sense to offer things like regional premium contracts, or a cash-settled alumina contract. That gives participants the ability to manage their price risk at a slightly more granular level, but typically for those types of more niche products to be successful you need some type of dislocation in the market. …I certainly think in lithium we’re years away from that,” Martin said.

Source: insights.fastmarkets.com/new-energy/lithium-what-is-the-market-talking-about/