In the current year, we’ve seen a gravity-defying commodity shutdown following the closure of Ukrainian ports, sanctions against Russia and disruptions to Libyan oil production that have sent energy, crop and metals buyers scrambling for replacement supplies. The price of copper doubled; wheat doubled and global commodity price indices nearly tripled from April 2020 to March 2022.
Unfortunately, prices of many commodities have fallen this summer as a result of crude prices falling nearly 40% from the June peak.
But one item is exempt from the commodity sale: lithium. In the past 18 months, lithium prices have increased by more than 500% amid supply chain bottlenecks and strong demand for electric vehicles. While the lithium rally has lost some momentum, there are some solid reasons it may still have legs including no major mines expected to come online in the next few years and explosive EV growth.
Meanwhile, the lithium miners’ stocks are still outperforming the broader market, with SQM (NYSE: SQM) has gained 89.7% in the year to date; Livent Corp. (NYSE: LTHM) +23.3% and Albemarle Corp. (NYSE: ALB ) +16.1%.
Here are some key developments on the lithium platform.
Source: Trade Economics
#1. EV and Battery Makers Consolidate Lithium Supplies
One of the biggest reasons why lithium prices have been rising over the past year or so has been severe supply pressure. Goldman Sachs He argued that the most “significant” new lithium supply will come from China, where companies have invested in new hard rock and saltwater projects. However, Mineral Information Benchmarking has countered this view by pointing out that domestic Chinese spodumene and other hard rock resources are of low quality, which is the main reason that Chinese converters are turning more more to Australia for supply instead.
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And now EV and li-ion battery manufacturers are moving to secure future lithium supplies. LG Energy Solution (LGES) has signed two MoUs with Canadian miners to secure lithium supply. LGES has reached deals Electra Battery Materials Corp. (NASDAQ: ELBM), Snow Lake Resources (NASDAQ: LITM) and Avalon Advanced Materials Inc. (OTCQX: AVLNF) at a ceremony held in Toronto in an effort to establish a battery supply chain within North America. LGES is one of the world’s leading electric vehicle battery manufacturers, providing the likes of Tesla Inc. (NASDAQ: TSLA) and General Motors (NYSE: GM).
Meanwhile, Chinese EV manufacturer NIO Inc. (NASDAQ: NIO) 12% stake in lithium firm Greening. The two companies entered into a strategic financing deal, with NIO agreeing to pay A$12M (~USD7.8M) to subscribe for ~21.82M Greenwing shares. NIO will retain ~12.16% of Greening once the transaction is complete and will have the right to be named on the company’s board of directors as long as it maintains at least a 10% stake..
According to Stockhead deputy editor Reuben Adams, the world has more than 300 new mines to support a 500% increase in battery demand by 2035. This effectively means that ~74 new lithium mines with an average size of 45,000 tons will have to be built in the decade ahead of us or so.
And there are some battery factories coming up that will put that lithium up. According to the US Department of Energy, 13 new battery cell gigafactories are expected to come online in the US by 2025.
Besides Tesla’s new ‘Texas Gigafactory’ in Austin, Ford Motors (NYSE: F) 3 gigafactories are lined up; one in Northeast Memphis, TN, and two in Central KY, the latter two being a joint venture between the company and a South Korean energy holdings conglomerate SK Innovations. General Motors plans to build at least four factories, one of which is a JV LG Chem (OTCPK: LGCLF) and the other three are JVs with LG Energy Solution.
#2. Argentine state-run miners to explore for lithium
For the first time ever, Argentina’s state-owned miners will begin searching for lithium. In a joint statement issued on Monday, YPF (YPFD.BA) lithium units, YPF Lithium and Y-TEC work will begin on a 20,000 hectare lithium prospecting project in Fiambala in the western province of Catamarca in partnership with a local mining firm Catamarca Minerals and Energy. The project aims to identify the highest concentrations of lithium in the Fiambala salt flats.
Argentina is the fourth largest lithium producer in the world with around 20 other lithium projects currently under development. However, almost all production is done by foreign or private miners, and the government is not involved.
“Now for the first time we have the possibility of a national company having a presence to acquire the resource” Roberto Salvarezza, chairman of the board of both YPF units, told Reuters.
Argentina currently produces about 8% of global lithium, well below Chile’s 22% slice of the global market. However, Argentina has a lot of potential to increase its lithium production considering that it is home to the second largest lithium reserve in the world, with 19.3 million tons according to the US Geological Survey.
#3. Explosive EV Market Growth
The global EV revolution has become an unstoppable trend and a major factor driving strong lithium demand.
According to projections from BloombergNEF, passenger EV sales will hit 21 million units in 2025, representing a nearly 220% jump compared to 2021 levels. “EV manufacturers are looking at a very tight market for battery raw materials for years to come. Significant near-term investment in the battery supply chain will be required to avoid a supply crunch,” said the clean energy forecasters.
In the meantime, the supply bottlenecks and global inflation that caused the battery cost trend to reverse are expected to be only temporary while cyclically high gas prices continue to act as an incentive to switch to electricity.
“Some of the factors driving the high costs of battery raw materials — war, inflation, trade friction — are also pushing the price of gasoline and diesel to record highs, which in turn is fueling more consumer interest in electric vehicles.” BNEF analysts have said.
By Alex Kimani for Oilprice.com
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