LITHIUM CONF: Seven things we learned about the lithium market

Fastmarkets has identified seven main takeaways on the lithium market from Fastmarkets’ 11th Lithium Supply and Markets Conference in Santiago last week.

1. New investments are key
A scarcity of capital in the lithium sector is a concern for many market participants given the expected growth of downstream demand.

Although consumption of lithium carbonate equivalent consumption is on track to reach 1 million tonnes by 2025 from just below 300,000 tonnes last year, new projects may fall short of this increased demand, depending on the pace of growth in the electric vehicle (EV) market.

Global output should approach 1.5 million tonnes per year in 2027, according to calculations from Chile’s ministry of mining, but it sees this as the sector’s maximum capacity taking into account all current exploration projects.

New investment in the domestic lithium sector total $1.81 billion, minister of mining Baldo Prokurica said, "[but] "the world will need more lithium and we need more projects than today," vice minister Pablo Terrazas added.

"We want state and privately owned companies mining lithium in Chile," Prokurica said.

Although the EV sector is growing rapidly while automakers from the United States, Europe and China invest in higher capacity, upstream investment is falling short, Anthony Tse, chief executive officer at Australia’s Galaxy Resources, said.

"We are still lacking some $2 billion a year, still dwarfed by the amount of investments on downstream," Tse added. "We can’t wait to invest in 2025 as the projects will take a couple of years to build."

2. Chinese state subsidies for new EVs will evolve into supportive legislation
Government funding for automakers will continue to fade while regulations on carbon emissions become stricter.

The latter will be supportive of increased production of NEVs in the coming years, market participants said at the conference.

3. Flexibility in production of lithium carbonate and hydroxide essential for survival

Lithium carbonate remains the most widely used lithium compound in lithium-ion batteries and is set to remain so the coming years.

This is despite market participants anticipating lithium hydroxide overtaking lithium carbonate usage once production and adoption of nickel-rich cathodes such as nickel-cobalt-manganese NCM 622 and 811, which typically use hydroxide, ramp up.

Producers Albemarle, SQM and Tianqi were among those in attendance at the conference that agreed that flexibility in production remains vital for addressing diverse industrial and technological challenges.

4. Nickel-rich batteries to dominate in the next few years
Conference attendees agreed that lithium-ion batteries with higher nickel content will dominate over the coming years.

Despite the increasing use and production in the short term of lithium-iron-phosphate (LFP) and lithium-manganese-oxide (LMO) batteries in China, the world’s largest single market for batteries, production and use of more advanced nickel-rich NCM 622 and 811 batteries are set to increase.

5. Industry increasingly moving away from cobalt
Social and supply issues are prompting the battery sector to look to reduce cobalt usage. Higher-nickel batteries are already seen as the next step to lowering cobalt content but the metal is still needed for reasons of safety and energy capacity.

"The industry is getting a lot of pressure from end-users after child labor in the Democratic Republic of the Congo was exposed," Yuan Gao, chief executive officer at Pulead Technology Industry, said.

Social awareness is driving the development of new chemistry in li-ion batteries, ESK Consulting lead consultant Jaime Alée added. The NCM811 batteries (80% nickel, 10% cobalt and 10% manganese) are already in production; cobalt demand growth has receded, he added.

While lithium demand growth will more than triple over the next six years, cobalt usage in batteries will grow at a slower pace to 110,000 tonnes in 2025 from 50,000 tonnes currently, according to Pulead’s estimates.

As well as child labor issues, supply disruptions caused by political instability are also a factor in looking to substitute cobalt with other metals in battery chemistry.

"The industry would love to depend more on manganese than cobalt," McKinsey & Co leader for EVs Ken Hoffman said.

6. Chile reshaping its regulations
Chile’s ministry of mining intends to present this week new regulations for the lithium mining industry in the country that it hopes will attract private and public investment in the sector.

The country considers lithium to be a strategic material, having been designated as such by the Augusto Pinochet administration in 1979. This is why SQM and Albemarle are in control of most domestic reserves, according to Chile’s Terrazas.

This new "national lithium policy" should garner interest in the mineral from state-owned Codelco and Enami - both companies are already planning on exploiting their existing resources.

"We already have a modern comprehensive mining code that protects investment," minister Prokurica said. "We are aware of the boom in electromobility and its value chain, and want Chile to take part on it."

7. Varied reactions to Fastmarkets-LME partnership to develop lithium price benchmark
Market participants at the conference largely gave a qualified welcome to news of the partnership between the LME and Fastmarkets to develop the lithium price benchmark.

Vivian Wu, the president of Tianqi Lithium, the largest producer of lithium compounds in China and which also has a 23.77% stake in SQM, said such a contract would be helpful to the company and to the industry more broadly.

James Calaway, chairman at Ioneer Ltd said it will be extremely constructive for the industry to have symmetrical, unbiased price discovery and forecasts. The price will provide emerging market participants with more transparency and a new financing and hedging alternative, he added.

Among other participants at the conference, José de Castro - manager for lithium operations at Lithium Chile - acknowledged this establishing any price as a benchmark would be a challenge but good to serve as a useful starting point in negotiations for lithium prices.

And Frontier Lithium CEO Trevor Walker said he was not surprised that the LME selected Fastmarkets as its partner to develop the benchmark because of Fastmarkets IM’s legacy. Walker emphasized that this price will help financing, hedging and theoretically attract the new entrants to the market.

Martim Facada

martim.facada@fastmarkets.com

Renato Rostás

renato.rostas@fastmarkets.com

Published

Martim Facada

Renato Rostás

June 20, 2019

12:40 GMT

Santiago