Supply ‘lag’ helps lithium triple its prices in a year
Lithium prices have tripled in a year, and the chemical element, which is used in batteries for electric vehicles, faces a long-term supply shortage.
The increase “is largely due to increasing demand for electric vehicles and the inelastic nature of supplies,” says Alec Lucas, research analyst at Global X. Bringing new production capacity online can take three to five years or more, “for studies, permitting, capital raising, and capital expenditure before any lithium is produced.”
The August reading for the lithium price index, which is tied to the global weighted average price for lithium carbonate and hydroxide—two primary lithium chemicals—stood at 1,024.9, gaining 307% year over year, and up 122% so far this year, according to data from Benchmark Mineral Intelligence.
Cameron Perks, senior analyst, lithium, at Benchmark Mineral Intelligence, believes “we are already in a supply shortage, as evidenced by current and sustained high prices.” Benchmark’s battery-grade lithium carbonate price within China has climbed to just over $70 per kilogram from just below $19 a year ago, he says. “It’s fairly simple really—there just isn’t enough lithium available.”
“Considering it can take over a decade from mine to discovery, there is naturally a lag,” Perks says. “Eventually, investment will allow supply to catch up, but this will take time,” he says.
For 2022, supply and demand appear to be balanced. Lithium chemical supply is forecast at 671,782 metric tons of lithium carbonate equivalent this year, with demand forecast at 670,406 metric tons, according to an August report by Alice Yu, a senior analyst at S&P Global Commodity Insights. That points to a surplus of 1,376 metric tons, and compares to an estimated deficit of 4,429 metric tons in 2021, the report said.
Battery applications are driving about 75% of lithium demand in 2022, and battery demand is primarily driven by EVs and grid energy storage, says Tony Fusco, president of Blue Horizon Capital, the firm behind the Blue Horizon BNE exchange-traded fund BNE, +0.20%, which provides exposure to the new energy economy, a term which refers to a transition from fossil fuels to renewable energy sources.
Whether supply can keep up with demand next year is not the issue, says Fusco. “The gap widens as we approach 2030.”
The Biden administration plans to make half of all new vehicles sold in 2030 zero-emissions vehicles. “Clean energy is at an inflection point, creating long-term investment opportunities,” says Charl Malan, senior analyst for the VanEck Natural Resources Equity Strategy. Globally, sales of electric cars doubled in 2021 to a record of 6.6 million, according to the International Energy Agency.
“Clean energy is at an inflection point, creating long-term investment opportunities.” — Charl Malan, VanEck Natural Resources Equity Strategy
China and Europe should drive global EV demand in the near term, says Malan, while Australia and Chile are “in the front row” regarding lithium supply and reserves.
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In China, the EV market is the largest in the world. China maintains “dominant market shares in lithium chemical processing, cathode and anode production, and lithium-ion cell manufacturing—industries which all contribute to demand for raw lithium, says Global X’s Lucas.
For the “next several years, the inelastic nature of lithium supply simply will not be able to keep up with the projected increases in demand for EVs,” he says, though supply dynamics may stabilize around 2025 or 2026, as new capacity has a chance to enter the market.
Lucas believes it is a “good time to invest in the lithium market given that the long-term growth prospects for [EVs] and energy storage remain strong, and both technologies will likely require lithium for the foreseeable future.”