Lithium prices soar, supercharged by demand for electric vehicles and limited supply
Lithium prices are rising at their fastest rate in years, sparking a race for security of supply and fueling concerns about long-term shortages of a critical ingredient in the rechargeable batteries that power everything from electric vehicles to smartphones.
A lithium price index from research firm and pricing provider Benchmark Mineral Intelligence doubled between May and November and is up about 240% for the year. The index is at its highest level in data going back five years.
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Running are bets on continued scarcity. Demand is growing as Tesla Inc. and other automakers increase sales of electric vehicles. Supply, meanwhile, has been constrained by limited investment in new projects following a recent bear market and supply chain bottlenecks. Producers often face environmental opposition and cumbersome licensing processes when attempting to mine the silvery white metal.
Although there is a lot of lithium in the world, converting it to battery-grade chemicals is a long and expensive ordeal. With traders and business buyers gaining momentum, prices are subject to big moves in either direction.
âIt’s like being in a booming real estate market,â said Jon Evans, CEO of Lithium Americas Corp. , a startup working to produce lithium in Nevada and co-owner of a project in Argentina with a Chinese partner. “There is a mad rush.”
Lithium Americas did not produce lithium but has a market value of around $ 4 billion after a recent spike in stock prices.
The rally raises concerns that battery makers and automakers are getting enough materials to meet demand for electric vehicles. Many companies also face higher prices for other raw materials and key parts such as computer chips.
Even though raw materials are only a tiny fraction of the total cost of vehicles, they could be contributing to the rise in average lithium-ion battery prices, according to research firm BloombergNEF. It would be the first such increase in at least a decade. Years of falling battery costs have made electric vehicles more competitive with gasoline-powered cars.
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High lithium prices are a boon for the small group of companies, including Albemarle Corp., which dominates the global supply and recently reported a surge in sales.
Many more are rushing to take advantage of the excitement, triggering price gains that mirror the rise in Tesla shares and EVs. The Global X Lithium & Battery Tech ETF has risen by more than 40% this year, while shares of some lithium producers have risen by around 70% or more.
Shares of lithium companies are the primary way for investors to bet on prices, as there is no active futures market like there is with more heavily traded commodities like oil.
Most of the lithium comes from countries like Australia and Chile. There are two main sources: a salt brine that is pumped out of the ground and spodumene, a mineral found in hard rocks. After extraction, chemical processes are used to make battery grade lithium compounds.
China is the world leader in lithium chemical processing and battery production, a concern for U.S. policymakers and businesses hoping to build a national supply chain but struggling to compete with low costs and low cost. China’s industrial expertise.
Environmental opposition and authorization delays are also hurdles for companies, including Lithium Americas in Nevada and Piedmont Lithium Inc., a North Carolina-based producer. Environmental fears are limiting the supply of raw materials, from oil to copper, which helps support prices across the board.
The challenge for lithium producers is that it takes many years and heavy investment to launch projects, creating mismatches between rapidly growing supply and demand. Prices skyrocketed in 2017 and 2018, only to drop rapidly after companies increased production.
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Some analysts expect a similar pattern to happen again this time around, but only if producers increase capacity and sentiment cools.
“There is enough lithium out there. The problem is the investment required to make it happen,” Eric Norris, president of Albemarle’s lithium unit, said during the company’s earnings call for the month. last.
Transactions in the sector are on the rise. Koch Strategic Platforms, part of the conglomerate of billionaire Charles Koch Koch Industries Inc., earlier this month invested $ 100 million in Standard Lithium Ltd., a company that works with a German company to produce chemicals in the lithium in Arkansas. Koch Strategic Platforms has made several similar investments in startups and the battery supply chain.
In November, Mr Evans’ company, Lithium Americas, outbid Chinese battery maker Contemporary Amperex Technology Co. – known as CATL – to strike a deal to acquire a lithium-focused producer. ‘Argentina for around $ 400 million.
Mining giant Rio Tinto PLC pledged more than $ 2 billion this summer to develop a lithium project in Serbia, but thousands of protesters across the European nation recently took to the streets to oppose the government that potentially allows them. the company’s extraction efforts that could harm the environment.
It is the latest example of environmental opposition that can delay the licensing and production of a product that could help decarbonise the economy, analysts said.
“We need to strike a balance between overall global environmental benefits and local impacts,” a spokesperson for Rio Tinto said in a statement. “We will not trade one for the other.”
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Some analysts see the flow of money building up in the industry, ultimately pushing supply up and cooling the recovery. Citigroup analysts predict that demand will exceed supply this year and next year before production exceeds consumption until 2025.
But the searing sentiment could still fuel price gains for much of next year, some analysts say.
âIt’s more about market participants’ perceptions, not actual material shortages,â said Lukasz Bednarski, senior research analyst at IHS Markit focusing on lithium. He expects a price correction at some point next year.