“Before we start to see prices rise, we need to see inventory [levels] come down to a more normal level,” Adams said during a virtual lithium market presentation, hosted by investment bank Morgan Stanley on Thursday September 24.
“We’re certainly seeing inventory [along the supply chain] being worked off and once we do get back to normal levels, I think we’ll see some price increases and, especially if demand from electric vehicles (EVs) remains strong, we could see some restocking,” he said.
Still, Adams believes that support to lithium prices will be limited in the near-term because higher prices will encourage the restart of idle capacity, while some producers are moving forward with expansion projects, which are expected to come on line in the next few years.
For example, United States-based lithium and specialty chemicals producer Albemarle aims to increase its nameplate conversion capacity of lithium battery-grade chemicals to 175,000 tons of lithium carbonate equivalent (LCE) by 2021 from 85,000 tons of LCE in 2019, it said in an investors’ presentation this month. But no timescale has been provided for the second-stage expansion to 225,000 LCE tons.
Low lithium prices
Prices for lithium, which is a critical component for EV batteries, surged over 2016 and 2017. But additional capacity expansions outstripped demand growth between 2018 and 2019, triggering a slump in prices.
The Covid-19 global pandemic added further bearish pressure to lithium prices over the first half of 2020.
“For the next few years, because of idle capacity and next-in-line expansion projects, we’re going to see prices capped,” Adams said.
Fastmarkets assessed the price of lithium hydroxide monohydrate, 56.5% LiOH.H2O min, battery grade, spot price, cif China, Japan & Korea
at $8.50-9.50 per kg on September 24, unchanged week on week, but down 25% from $11-13 per kg on September 26, 2019.
Oversupply and the subsequent low-price environment in the lithium sector has meant that many projects have been delayed or halted.
“This will create problems further down the road,” Adams said.
For example, miner Lithium Americas is advancing the Cauchari-Olaroz lithium project in northern Argentina in partnership with China’s Gangfeng Lithium. The project is around 50% complete and, once operational, is expected to produce 40,000 LCE tons.
“There is a cushion of idle capacity that can be restarted, but to get to the levels [of lithium battery-grade chemicals] needed by 2025, a lot of new projects will be needed to be funded soon,” he added.
Adams believes that demand increase will be driven not only by EV uptake, but also by energy storage systems (ESS) as the share of renewable sources of electricity increases globally.
“By 2025, we’ll be looking for demand of around 900,000 LCE tons. In theory, there should be enough supply, but it’s only going to happen if investment is made in a timely manner,” he said.
Need for price transparency
The need for price transparency in the lithium industry is an important factor for the growth of the market itself, according to Adams.
“Although lithium is a smaller market today, it is getting bigger and it is unimaginable that it remains an opaque market… with lithium-ion batteries a large part of the cost of an EV, original equipment manufacturers (OEMs) need a sophisticated and transparent pricing mechanism which will lead to more competitive EV prices,” he said.
“A sophisticated market enables risk management along the lithium supply chain, facilitates investment decisions and helps to efficiently allocate resources and manage cashflows,” Adams said.
The London Metal Exchange is planning to launch a lithium futures contract in response to demand for price transparency and liquidity, and partnered with Fastmarkets to develop a cash-settled price to underpin a futures contract listed on the exchange.
Join the lithium industry’s biggest annual networking event – Lithium Supply & Markets – taking place on October 26-28. Find out more here.