Recent figures released by the Australian government show that demand for lithium is continuing to surge.
Critics and developers of alternate battery metals have suggested that lithium is becoming too expensive, while others have raised concerns about brine lithium’s no-so-green production.
However, the latest data from the Australian Department of Industry, Science, Energy and Resources (DISER), tips global lithium demand will double by 2023.
DISER’s September “Resources And Energy Quarterly” forecasts that world demand for lithium will increase from 305,000 tonnes of lithium carbonate equivalent (LCE) in 2020 to 486,000 tonnes in 2021.
Demand is then forecast to reach 724,000 tonnes by 2023, as global electric vehicle uptake rises.
The forecasts from the Office of Australia’s Chief Economist, suggest the very strong increase in demand from 2021 to 2023 will match the increasing electric vehicle uptake — driven by government measures, lower vehicle prices and increasing model choice.
However, the quarterly report suggests that this surge in lithium demand will lead to a short-term “supply pinch” in spodumene. Already auctions are now taking place for the small number of uncontracted tonnes that are available.
Australian lithium production rocketing upwards
One of the big winners amongst Australian exports is lithium. According to the government’s report, the forecast for the battery metal’s Australian exports for 2021–22 have been revised up again from A$2.0B to $A3.4B, reflecting the very strong gains in the price of spodumene, as well as increases in export volumes.
Spodumene prices closed at US$405 a tonne at the end of 2020 but have since surged to US$1,300 a tonne in spot terms; well above the June 2021 Resources and Energy Quarterly forecast of US$670 a tonne for 2021. Exports in 2022–23 have been revised up from $2.5B to $3.8B, again reflecting the very strong gains in the spodumene price.
The DISER tipped that Australia’s lithium production is forecast to rise from 217,000 tonnes lithium carbonate equivalent (LCE) in 2020–21 to 374,000 tonnes LCE in 2022–23.
The September quarterly report suggested that Australia’s lithium exports – of spodumene concentrate and refined chemicals – are expected to almost match zinc exports in 2022–23, as the race to electrify the world’s auto fleet gathers pace.
Rising prices for lithium are notably supporting the recovery of Australian producers with two refineries under construction.
Asia is still dominating lithium product demand, despite battery factories diversifying into Europe and the U.S. Interestingly, leading Asian battery manufacturer, LG, is set to increase cathode production in South Korea and potentially reduce reliance on China for supplies of precursor materials.
As has recently happened with nickel demand in Australia, there is also potential for battery developers to joint venture into mining to secure supply chains.
Lithium trade increase
The government’s report indicates that during the June 2021 quarter, China’s lithium hydroxide exports increased by 19% quarter-on-quarter and 23% year-on-year, while lithium carbonate imports increased by 24% compared to the March quarter, and by 80% year-on-year.
South Korea’s lithium hydroxide imports for the June quarter 2021 rose by 7.1% quarter-on-quarter, while lithium carbonate imports rose by 35% quarter-on-quarter. Japan’s lithium hydroxide imports rose 70% quarter-on-quarter for the June quarter 2021, but fell 17% year-on-year, while imports of carbonate increased 63% quarter-on-quarter.
Australia’s growing exports of spodumene makes up the largest share of global supply in lithium.
This then is typically processed into lithium hydroxide in China. However, in August 2021, Australia produced its first lithium hydroxide.
The lithium market evolution
In the eight months to end August 2021, the spot lithium hydroxide price (delivered to China) has averaged US$17,330 a tonne, up 136% from end 2020, though price gains have been more subdued in European markets, according to the report.
LME cash-settled lithium hydroxide futures in mid-September 2021 closed at US$18.50 per kg via price assessment from Fast Markets.
Lithium LME committee members include Tianqi, Albemarle, Tesla and ASX-listed, Pilbara Minerals (ASX: PLS). These lithium hydroxide futures contracts will assist in liquidity and transparency as the market matures.
Lithium hydroxide prices are forecast to rise from US$9,890 a tonne in 2020 to US$14,560 a tonne in 2023. The drive upward in prices reflects forecast increased demand for the chemical from electric vehicle makers for cars with a longer driving range.
Prices are also high due to an inability to bring on more hydroxide refining capacity in a timely and cost-effective manner.
The quarterly report found that spot spodumene prices (delivered to China) rose to US$2,240 a tonne in September 2021, up over five-fold since the start of the year.
Spodumene prices are forecast to rise from an average of US$435 a tonne in 2020 to over US$1,000 a tonne over 2022 and over US$900 a tonne in 2023, with spot and contract pricing under negotiation.
The DISER report noted that some suppliers of spodumene in Australia have historically worked off long-term contracts. Contracts can be for one year but Albemarle, the world’s largest lithium producer, has contracts often ranging over three to four years. Pricing reset mechanisms are commercial-in-confidence.
As prices fell during 2018–2020, the market evolved to a mix of short-term and long-term contracts, as witnessed by long term producers like Albemarle. Now, with more recent price rises, there is strong disparity between spot and contract sales. Pilbara Minerals’ Battery Metals Exchange trading platform for uncontracted spodumene concentrate commenced in July, with the initial parcel clearing at US$1,250 a tonne.
However, at their mid-September auction they achieved US$2,240 a tonne. Contract prices for spodumene are expected to increase strongly in 2021 and 2022, driven by rising electric vehicle production as well as short-term supply issues
EV sales tipped to top 5M units
The report shows that electric vehicle sales rose almost 21% quarter-on-quarter in the June quarter 2021, with sales dominated by China and Europe.
Global electric vehicle sales exceeded 3M units in 2020, and the DISER report suggests growth is likely to continue over the rest of 2021 – with sales forecast at about 5M units, up from the last forecast of 4.4M units.
However, the report suggested there is more than usual uncertainty in the forecast, due to a semi-conductor shortage in the auto industry, but auto-makers are expected to prioritise electric vehicles over combustion engines.
Longer term, demand is projected to rise to about 30% of vehicle sales annually by 2030, given manufacturers’ declarations of capacity hikes and recent strong sales trends.