Lithium Market Dynamics

Lithium Demand

Historically the lithium market was dominated by demand from the ceramics and glass industries as the addition of lithium increases the mechanical strength and thermal shock resistivity of both products. Together these applications accounted for over 40% of demand with other applications including lithium’s use in lubricating greases, for air treatment, the production of polymers, and metallurgical casting powders making up the majority of remaining demand.

The rise of the rechargeable lithium ion battery, parts 1 and 2

The modestly sized lithium market then experienced a first phase of rapid, battery-related, growth beginning in the late 1990s as small rechargeable lithium-ion batteries (LIBs) became the preferred power source in the fast-growing consumer electronics and cordless power tool markets. Between 2000 and 2017, lithium demand from LIBs grew c.12x to nearly 60,000t while consumption in more traditional applications merely doubled during the same period to around 56,000t.

Having become established as the preferred power source for consumer electronics over the last two decades, LIBs have now been adopted as the technology to underpin efforts by the world’s major economies to significantly reduce greenhouse gas emissions from vehicles to combat climate change. As a result, growth in lithium demand for small LIB applications has been surpassed in recent years by the rapid growth in larger LIBs to support the ‘e-mobility’ revolution underway in the transport sector. This trend is expected to accelerate rapidly over the next decade as the transition matures.

The e-mobility revolution

Vehicle manufacturers are introducing zero and low emission electric powertrains in all major markets in response to tightening emissions legislation and growing consumer awareness of climate change. In the past decade global sales of plug-in electric vehicles (EVs) have increased from just 6,000 in 2009 to over 2 million in 2018, and are expected to surpass 2.6 million in 2019 (source: EV Volumes). This means that one in every 30 cars sold globally in 2019 will be plug-in EV versus just 1 in 10,000 ten years ago.

Global plug-in vehicle fleet:

Source: EV Volumes

Further tightening of emissions legislation, greater vehicle choice, increasing battery capacity (providing greater vehicle mileage per charge), greater availability of charging stations, and, of course, ownership cost parity with gasoline and diesel vehicles are all going to be key determinants of future EV growth.

Powertrain cost comparison for 60kWh/500km range (without subsidy):

Source: Bernstein estimates and analysis

However, assuming these factors play out as expected, EV sales are forecast to grow from 2.6 million in 2019, to 10 million in 2025, 28 million in 2030 and 56 million in 2040, equating to approximately 11%, 30% and then 57% of annual global vehicle sales respectively.

Global long-term passenger vehicle sales by drivetrain:

Source: BloombergNEF

Key EV markets

As the first half 2019 sales figure show, China dominates EV sales (and production) followed by Europe and the USA.

EV sales growth 2019 1H vs. 2018 1H:

Source: EV volumes

These rankings are not expected to change over the coming decades, but all three markets are forecast to see notable increases in EV penetration rates, complemented by growth in other, later adopting, markets including India.

Global short and long term EV adoption by region:

Source: BloombergNEF. Note Europe includes EU+EEA+Switzerland

Furthermore, the transition to electric drivetrains and LIBs is not expected to be limited to passenger vehicles. Bloomberg report that 400,000 electric buses are already in operation globally while sales of electrically powered vans, trucks (such as Tesla’s Semi) and construction and mining equipment are all expected over the next decade, as well as the production of electrified marine and rail transport vehicles.

EV share of global vehicle fleet by segment:

Source: BloombergNEF. Note commercial vehicle adoption figures include China, Europe and USA

Other LIB Applications – Power storage

While LIB demand from electronics and other devices, such as e-bikes and e-scooters, is set to increase, their impact in terms of lithium demand is expected to be relatively modest. However, larger volume demand for lithium may develop in parallel with the growing reliance on renewable power sources in the global energy mix. The need to normalise the availability of electricity generated from sources such as wind and solar is now seen as critical to their greater contribution to overall power provision. Hence, being able to store and then release more of the electricity generated from these sources when it is required is a key step. Behind pumped-storage hydroelectricity (the use of surplus or low cost power to pump water into elevated reservoirs to generate hydroelectricity when required), LIBs are now the most significant means of storing electricity generated from renewable sources.

Competing battery technologies for energy storage:

Source: IEA

Recent growth in the energy storage market:

Source: IEA

Growth in this market over the past five years has been in the order of 10x, but similar growth rates are expected over the next five years too (see US energy storage forecast chart below as example). Furthermore, the economies of scale created by the mass production of LIBs for the auto market is expected to have a beneficial effect on the penetration of the batteries in the energy storage sector.

Forecast growth in the US energy storage market:

Source: Wood Mackenzie Power & Renewables

Tesla’s Powerwall unit has commercial and residential applications:

Source: Puget Sound Solar

GE’s Reservoir system is built around modular 1.25MW units containing 16,000 lithium-ion cells each:

Source: ge.com

Overall, Roskill are forecasting a c.4x increase in refined lithium demand between 2018 (224kt LCE) and 2025 (894kt LCE) with demand from LIBs expected to rise 5.5x from 145kt LCE (56% of the total) to 801kt LCE (85%). In contrast demand from traditional applications such as ceramics and glass which make up the balance of consumption is only expected to rise by 17% over the same period.

Forecast global refined lithium consumption:

Source: Roskill. Note % =LIB demand as % of total demand

Lithium supply

With approximately 0.8kg of lithium carbonate required per kWh in a LIB, it is clear to see that the lithium supply industry has a significant challenge ahead to provide the volume of raw lithium material required by battery manufacturers to meet the forecast demand.

Lithium raw material supply is currently dominated by a small number of operations located in a handful of countries. Hard rock production currently outweighs brine production (approximately 70:30) due to a c.3x increase in production from Australia in recent years which has made it the largest national producer. However, when considering lithium supply it is important to factor in the need for further refinement of the raw material from hard rock sources (typically a concentrate) to generate a product suitable for subsequent use in downstream applications, such as lithium carbonate or lithium hydroxide salts. This not only reduces the volume of lithium available for downstream consumption, as this process does not achieve 100% recovery rates, but changes the national dominance of the market. China replaces Australia as the dominant producer due to its large lithium conversion industry, while countries exploiting brine deposits, where lithium chemicals are produced directly from the brine, such as Chile and Argentina maintain their stakes from the mine phase.

In 2018 lithium production from mines and brines was approximately 380kt LCE, falling to around 260kt LCE after conversion of mine concentrate to salts (source: Roskill).

Lithium raw material and chemical supply by country in 2018:

Source: Benchmark Minerals

Lithium chemical production

Brine operations typically produce an intermediary lithium chloride following a number of phases of evaporation and separation to remove other salts. This product is then treated with sodium carbonate and dried to produce a high purity lithium carbonate product suitable for use in subsequent chemical processes, such as battery manufacturing.

To reach the same point from hard rock sources, the ore must first be crushed, ground and processed to increase the concentration of Li₂O in the material to a suitable purity to allow subsequent conversion into a lithium salt, such as lithium carbonate or lithium hydroxide. This concentration step is usually achieved through a combination of gravity and flotation processes with final concentrate grades for subsequent lithium salt production required to be in the 5-6% Li₂O range.

The concentrate is then roasted at over 1,000°C to alter the crystal structure of the spodumene, potentially leached with sulphuric acid depending on the process being followed, and reacted with sodium carbonate to produce lithium carbonate. Alternatively, the spodumene is calcined with limestone at up to 1,000°C to alter the crystal structure of the spodumene and produce lime (Ca(OH)₂). The lime then reacts with the altered spodumene to produce Li₂O. This can then be leached with hot water to form lithium hydroxide.

Production of lithium salts from hard rock & brines:

Source: Benchmark Minerals

Recently, the availability of this direct hydroxide production route has added to the appeal of hard rock sources for some battery manufacturers and end users as lithium hydroxide is the preferred feedstock for the latest battery technologies that are providing EVs with greater mileage ranges per charge.

Demand/Supply dynamics

In response to the expected 5.5x uplift in demand for refined lithium to 2025, the supply sector is responding by commissioning new hard rock and brine projects, as well as expanded existing operations. Additional concentrate conversion capacity is also being brought on-line to complement the growth in hard rock production. China is expected to continue to dominate this part of the supply chain in the medium term, but as new hard rock operations are brought on-line, growth of conversion capacity closer to the source of supply is expected. This process is already underway in Australia and Canada and is expected to take place in South America, Europe, and potentially Africa over time as greater emphasis is placed on shortening supply chains and reducing the carbon footprint associated with downstream lithium consumption.

Global mine & refined lithium production:

Source: Roskill

Overall a 2.7x increase is forecast in supply of mined and refined lithium by 2025 to 1.0Mt and 720kt respectively. In the short term this is expected to result in a modest surplus in the market with lithium prices remaining subdued as a result. However, in the medium to longer term Roskill are forecasting that the refined lithium market could then move into deficit as early as 2021 as supply expansions are unable to keep pace with the onset of greater, EV-related, demand. The deficit is then expected to increase, based on the 4x increase in EV sales through to 2025. In turn this expected to have a positive impact on lithium prices.

Global refined lithium market dynamics & spodumene price forecast:

Source: Roskill, Benchmark Minerals

Lithium Overview

E-mobility in Europe

Lithium Battery Industry Initiatives in Europe