The Lithium Oligopoly. Prices doubled in 2 years, for the “salt of the future”.


Volkswagen Chairman Herbert Deiss told CNBC at the Paris Motor Show in November that “electric mobility will take off by 2020,” while Tesla CEO Elon Musk announced in May his aim for annual production to be at 1 million vehicles by this same year.

Lithium_Supply_Cost
Lithium – the metal of the future – key material in the coming green revolution of storable energy. CRU estimates that the Chinese spot price has almost tripled from $7,000 the middle of last year. Only four producers control about 85% of supplies. 3 Lithium Mining Stocks That Produce 90% of All Lithium. Chile’s SQM and U.S. companies FMC Corp and Albemarle Corp dominate the production landscape, extracting lithium from salt lakes in Chile and Argentina. Albemarle also operates a brine operation in Nevada. The fourth producer is Australia’s Talison, which produces lithium at the Greenbushes mine in Western Australia. But it is hardly an independent, being 49%-owned by Albemarle and 51% by China’s Tianqi Lithium, which takes almost all of the mine’s output for processing in China. This oligopoly poses a real challenge for Tesla, will need up to 27,000 tons of lithium carbonate a year to reach its sales target of 500,000 vehicles a year by the end of 2018.
Concern is growing among analysts, and some other carmakers, that the supply of what Mr Musk dismissed as mere “salt” will not be able to keep pace with demand as the expansion of electric vehicles begins to erode the world’s century-long reliance on oil. Prices for lithium carbonate, used in the cathode of a battery, have more than doubled since 2015, according to consultancy CRU.
Last month Swiss bank UBS became the latest to raise its forecast for penetration of electric vehicles by more than 50 per cent. It now estimates EVs will hit 14 per cent penetration globally by 2025 and 30 per cent in Europe as the cost parity with conventional fuel vehicles is reached in the next few years. “While all battery materials are abundant, mining and refining capacity could represent a bottle neck when EV demand takes off, even if only temporary,” UBS analysts noted. Dr David Deak, chief technical officer at Lithium Americas, who formerly worked as an engineer for Tesla, says the lithium market needs to grow from its annual production of 182,000 tonnes to an average of 3.1m tonnes for 20 years to electrify the world’s fleet of vehicles.
Others remain confident that miners can meet the challenge given that lithium is abundant in the earth’s crust. Analysts at consultancy CRU expect supply to ramp up and the market to be in a surplus from 2018 onwards. “It will be a healthy market for producers of lithium, but there’s so much lithium to be found on the earth, there’s no shortage of lithium,” Willem Middelkoop, founder of the Commodity Discovery Fund in the Netherlands, says. The hunt for the “salt of the future” will intensify further.

Tesla_Factory_MapAccording to Goldman Sachs, the TSLA “gigafactory” could require the equivalent of 15,000 tons to 25,000 tons of lithium carbonate annually at full capacity which would consume 17% of global lithium output. Rockwood is one of the three major suppliers of lithium who are responsible for 90% of global lithium production. When Albemarle Corporation (ALB) bought Rockwood earlier this year, they inherited the Chemetall-Foote lithium “mine” which is the largest lithium mine in the U.S. located in Silver Peak Nevada, and just a 3.5 hour drive from the Tesla “gigafactory”. In July 2010, Rockwood (now ALB) announced that they would double the capacity of their Chemetall-Foote mine in Silver Peak Nevada. 50% of the project funding or $28.4 million was provided by a grant from the U.S. Department of Energy. ALB states that sales of lithium for electric vehicle batteries are up 30% year to date. The Company expects this to the largest driver of lithium growth over time and currently sells lithium to Panasonic, a partner in the TSLA gigafactory. ALB’s latest corporate presentation even makes mention of how much lithium a TSLA electric vehicle needs:
Being a $33 billion company, TSLA is not likely to depend on junior miners to supply their lithium. They will likely stick with one of the three biggest lithium producers in the world, ALB. In their latest corporate presentation, ALB claims to be the #1 global provider of lithium now ahead of FMC and SQM.
tibetChina’s lithium reserves are an estimated 3.2 million metric tons, according to the USGS in January 2016, meaning that the superpower ranks among those with the largest domestic supply. Most resources are located in its Qinghai and Tibet regions. In response to how much the market has grown – and where it may progress to in coming years – the price of Chinese battery grade lithium is currently well over $20,000/tonne, compared to $7,000/tonne in mid-2015, according to mining analysis firm CRU. China is the world’s largest electric vehicle market. According to the China Association of Automobile Manufacturers, sales of battery electric vehicles reached 258,000 units in the first ten months of 2016, increasing 102.5 percent year on year.
Argentina, Bolivia and Chile form a troika of lithium producers in Latin America, otherwise known as the “lithium belt” or “lithium triangle.” For Latin America, “industrial-grade lithium carbonate contract prices increased by around 40% in 2016 due to strong demand growth and the ongoing supply deficit. Battery-grade lithium carbonate and lithium hydroxide prices surged higher.”
Chile, with its dry climate and lithium-rich Salar de Atacama salt flats, is an ideal production environment. The country is also popular with investors due to its free market economy. In addition, Reuters reported in November that Chilean firm SQM, one of the world’s largest lithium producers, saw 2016 third quarter profits more than quadruple due to rising lithium prices. But, CRU told CNBC via e-mail that, “the [Chilean] industry is facing serious issues such as [the] imposition of production quota, on-going labour disputes [and] water shortage.”
In 2015, Australia was the largest producer of lithium and accounted for around 40% of global lithium supply. Location is key for Australia, being close to China.

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About Alex Imreh

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