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Dynamics

Lithium market dynamics

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 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.

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 6.75m in 2021, and are expected to surpass 9.5 million in 2022 (source: EV Volumes). This means that approximately one in every 9 cars sold globally in 2022 will be plug-in EV versus just 1 in 10,000 12 years ago. BloombergNEF reports that there are now 12 million passager EVs, 1 million commercial EVs, and over 260 million electric two- and three wheelers on the roads globally today.

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.

However, assuming these factors play out as expected, EV sales are forecast to grow from 6.75 million in 2022, to 14 million in 2025, over 30 million in 2030 and over 65 million in 2040, equating to approximately 16%, over 30% and nearly 70% of annual global vehicle sales respectively (Source: BloombergNEF).

Global plug-in vehicle fleet:

  • % Total vehicle Sales (RHS)
  • PHEVs
  • BEVs

Source: https://www.ev-volumes.com

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

  • ICE - regulatory compliance
  • ICE - poor compliance
  • BEV (mainstream)
  • BEV (leaders)

Source: Bernstein estimates and analysis

Global long-term passenger vehicle sales by drivetrain (million vehicles):

  • Battery electric
  • Plug-in hybrid
  • Fuel cell
  • Hybrid
  • Internal combustion

Source: BloombergNEF

As the 2021 sales figure show, China dominates EV sales (and production) followed by Europe and the USA.

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

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 sales growth 2021 vs. 2020:

  • 2020
  • 2021

Source: https://www.ev-volumes.com

Global short-term EV adoption by region, EV share of sales (%):

  • China
  • Europe
  • US
  • India
  • RoW

Global long-term EV adoption by region, EV share of sales (%):

  • China
  • Europe
  • US
  • India
  • RoW

EV share of global vehicle fleet by segment, EV share of sales (%):

  • Buses
  • Light commercial
  • Passenger
  • Medium commercial
  • Heavy commercial

Source: BloombergNEF

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.

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 three 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.

Overall, Canaccord Genuity are forecasting a c.5x increase in refined lithium demand between 2021 (535kt LCE) and 2030 (2,502kt LCE) with demand from LIBs expected to rise 5.5x from 428kt LCE (80% of the total) to 2,375kt LCE (95%). In contrast demand from traditional applications such as ceramics and glass which make up the balance of consumption is only expected to rise by 19% over the same period.

Competing Battery Technologies for energy storage :

  • Lithium-ion batteries
  • Lead-based batteries
  • Flywheels
  • Flow batteries
  • Sodium sulphur batteries
  • Compressed air
  • Supercapacitors
  • Zinc air
  • Other

Source: IEA

Recent growth in the energy storage market:

  • Behind the Meter
  • Grid-scale

Source: IEA

Forcast growth in the US energy storage market :

  • Residential
  • Non-Residential
  • Front-of-the-Meter
  • The US energy storage annual market's value will increase roughly 7x between 2019 and 2024
  • FTM market will account for 53% of the value in 2024

Source: Wood Mackenzie Power & Renewables

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 lithium raw 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 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 2021 lithium production from mines and brines was estimated at 503kt LCE, falling to around 465kt LCE based on effective conversion capacity and factoring conversion losses of concentrate to salts (source: Canaccord Genuity).

Lithium Raw Material and Chemical Supply by country in 2018:

Lithium Raw Material:

  • Argentina (11%)
  • Australia (46%)
  • Chile (28%)
  • China (13%)
  • USA (1%)
  • Other (1%)

Lithium Chemical Supply:

  • Argentina (11%)
  • Chile (29%)
  • China (51%)
  • Russia (2%)
  • USA (7%)

Note: Yield Loss Between Stages

Source: Benchmark Minerals Intellegence

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.

Demand/Supply dynamics

In response to the expected 5.5x uplift in demand for refined lithium to 2030, 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.