Last week, Eric Norris, an executive at Albemarle Corp, told Reuters that global supplies of lithium will not meet demand by 2025 unless prices rebound. The comments came after COVID-19 forced companies, including Albemarle, to pause expansions in 2020.
According to the article, Benchmark Mineral Intelligence predicts that, by 2025, demand is expected to outstrip supply by almost 228,000 tonnes. However, with prices currently weakened by a year of uncertainty caused by COVID-19, mining companies are hesitant to expand their projects.
Lithium carbonate prices dropped from a high of US$20,694 per tonne in 2018 over fears about oversupply, to around US$6,700 per tonne recently. Since 2020, many mining companies have scaled back operations until prices rise, making expansion viable once again. As Norris says, “We’re at the ready to expand, but it’s got to be at terms that make sense.”
Governments around the world are setting ambitious targets. The EU, for example, aims to have at least 30 million zero-emission vehicles on its roads by 2030. In the UK, the government had gone so far as to ban the sale of all new petrol and diesel vehicles by 2030, with all new cars and vans to be fully zero-emission at the tailpipe by 2035.
In the U.S. and Asia Pacific, similar targets have been set. Furthermore, Bloomberg has predicted that, globally, EV sales will surge by 60% in 2021. So, clearly, the onus is now on lithium developers and producers to deliver the goods.
The China effect
One country that could have a positive impact on lithium prices is China – which is also home to the world’s biggest automotive market. The Chinese government has maintained its target of ensuring 20% of all new car sales, by 2025, are domestic “new energy vehicles” (NEV). These comprise electric, plug-in hybrid, and hydrogen-powered vehicles.
Certainly, China’s booming EV industry is already pushing up lithium prices. Benchmark Mineral Intelligence stated: “As was demonstrated in the industry’s previous price spike, which began in late 2015, demand growth at a rate that exceeds industry expectations can have profound implications for the future growth trajectory, and China has often proven a bellwether for the direction of global prices, with greater liquidity in the domestic market making pricing more responsive to market imbalances.”
In December last year, prices for lithium carbonate jumped by nearly 12% to an average of US$6,700 per tonne. There was also a 2.6% rise in Chinese lithium hydroxide to US$7,950 per tonne by the end of the year, according to Benchmark Mineral Intelligence.
The Biden effect
The other important factor that should ensure a lithium price rally is President-elect Joe Biden’s US$2 trillion climate plan, to be deployed during his first four-year term. Although details of this massive stimulus will not be released until February 2021, it is thought that it will include huge investment in automotive infrastructure, including EV charging stations and working towards zero-emission public transport. He has also pledged to spend US$300B on R&D, including EV technology. While it is all very well that governments are pledging to tackle climate change by setting stringent EV targets, they need to get the lithium out of the ground first. If China’s current EV boom continues just as strongly, and Biden’s stimulus has the desired effect, then these factors could encourage expansion.
But what will really help mining companies is cohesion across all aspects of the industry. Norris again: “If we don’t work as a supply chain together – from the lithium supply base all the way to the EV producer – there is a risk of slowing down plans,” he says. For this to happen, there will have to be a dramatic improvement in trade relations between key countries like China, the U.S., and Australia. Time will tell if the new administration in the U.S. will work towards making this happen, or if the urgency to meet national EV targets will be the most important agent of change.