Lithium sector looks for equilibrium
A slump in the price of lithium could deter investment, leading to a tight market further down the line as battery demand soars. By Emmanuel Latham, Ben Kilbey and Abdulrhman Ehtaiba
Lithium prices plummeted in 2019, as the market tipped into oversupply and EV growth slowed. Production of the battery metal is set to almost triple by 2025 to more than 1.5 million metric tons, but there are concerns that a fall in upstream investment could flip the market into undersupply further out.
Lithium is an integral component of batteries for electric vehicles. As EV purchases have rocketed – over 2 million vehicles were sold in 2018 alone, according to S&P Global Platts Analytics – so has the need for batteries, in turn fueling lithium demand.
On the expectation of further fast growth, investment has flowed into the lithium supply chain at a brisk pace over the past few years. However, prices have dropped this year, dampening enthusiasm for new projects.
One project facing difficulties is Nemaska Lithium’s Whabouchi mine in Quebec, Canada. Nemaska recently announced layoffs as it attempts to ensure optimal cash flow for the continuation of the Whabouchi project.
Another is China’s Tianqi Lithium’s plant in Western Australia, which began lithium hydroxide production in September. Alongside the start of operations, Tianqi announced the postponement of the second half of the 48,000 mt/year project, citing poor global lithium prices for the delay to the plant, which was initially expected to be commissioned in full by the end of 2019.
At the same time, industry participants warn that the headline fall in prices does not tell the full story. They argue that the present situation is short term, with demand for higher-quality grades set to recover, while the mismatch between lithium spodumene supply and processing capacity bottlenecks in China, a factor in current price weakness, will be shortlived.
Nevertheless, the weak market has led to greater caution among investors and suggests potential for a tighter supply picture in the later part of the next decade. The industry will have to adjust to the new conditions and straighten out the kinks in the supply chain, in order to achieve a sustainable supply that can fuel the unfolding transport revolution.
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