Experts are debating which commodities will benefit from growing demand for environmentally friendly initiatives and the lithium segment is seen to be a major beneficiary.
Lithium demand is expected to outpace supply due to the rise of electric vehicles and renewable energy storage.
Growing demand will also benefit copper, nickel, cobalt, graphite, and rare earth elements.
Chris Berry (pictured), an energy metals strategist at New York-based consultancy House Mountain Partners, talked to BNamericas about surging lithium demand, risks involved, and the importance of good ESG (environmental, social, governance) practices.
BNamericas: What are your expectations for the lithium segment?
Berry: There is a broad consensus across the market that lithium demand is going to outpace supply in the coming years based on the increased penetration of electric vehicles and renewable energy storage.
This will all be underpinned by the lithium-ion battery. While the lithium market today is roughly 350,000t/y in size, the current 20% per year compound annual growth rate leads to a 1Mt/y market by 2025 and possibly a 2Mt/y market by 2030. Lithium’s light weight and ability to store an electrical charge mean that it is not substitutable in the battery and so these strong demand forecasts are quite realistic.
Pricing is always a challenge with lithium as not all lithium is created equal and different forms of lithium chemicals (carbonate or hydroxide, for example) trade on a contract basis at different price points.
That said, lithium pricing is going to have to increase to incentivize new mine supply before 2025. I see new lithium supply coming from Australia, Chile, Argentina, and Brazil in the immediate term with the possibility of new supply from the US and Europe coming to market later this decade.
BNamericas: Which are the biggest lithium producing countries? Do you see major changes in this ranking in the coming years? If so, why?
Berry: Australia and Chile dominate lithium production from the hard rock and brine sources, respectively, with Argentina also an honorable mention. While all major lithium producing regions will maintain market share, countries like Brazil have potential to rapidly increase domestic production to feed this hungry market.
Lithium is not rare but finding it in economic quantities and producing battery-quality material to scale is a much tougher proposition. Mining companies that can accomplish this in the future should be extremely popular to investors looking to participate in the electric vehicle (EV) transition.
All lithium producers today are focused on reducing their carbon footprint in their lithium production processes and so this will also be a focus of emerging producers of lithium. End users such as electric vehicle manufacturers want to have extreme visibility across their supply chains and so those lithium mining companies that can produce high-purity lithium at a net (or near) zero-carbon footprint can be true case studies for other industries.
Countries that can demonstrate this as well should also be the beneficiaries of investment inflows.
BNamericas: Apparently we have a growing demand for metals linked to the clean, renewable energy segments. Which metals tend to benefit from this scenario? Why?
Berry: The main beneficiaries for the clean energy transition include lithium, copper, nickel, cobalt, graphite, and rare earth elements. There are others, to be sure, but these are some of the most notable commodities.
The paradox here is that to truly decarbonize the transportation sector, we will need more, not less, of these metals which only reinforces the need for clean and sustainable production of lithium and others. As I said before, companies that can produce these high-purity metals at scale are very well placed to handle any pricing or market volatility.
BNamericas: In this same scenario, which commodities could perform not so well?
Berry: Coal comes to mind, but there is a great deal of research going towards the production of “low carbon” steel so it could be that some of the most hated commodities right now may see an increase in demand if the production processes are decarbonized to an adequate extent.
Oil is another commodity which many think has a bleak future, but given the ubiquity of hydrocarbons in the global economy across transportation and plastics, for example I wouldn’t count it out just yet.
BNamericas: What are the main risks for the materialization of your projections?
Berry: Governments have led the charge towards decarbonization with announcements banning the sale of diesel-powered vehicles over the next 15 years. While some of these announcements are non-binding, any widespread evidence where governments back away from their support of decarbonization by revoking subsidies, for example is one risk. I view this unlikely.
Another risk would be that a different battery technology or hydrogen emerges with an overall economic profile superior to that of the lithium-ion battery. I also view this as unlikely and do not think that any new technology will challenge lithium ion for the next 10-15 years. There are over 200 gigafactory-scale battery plants either in operation, under construction, or announced and all of them are built around lithium-ion technology. If there were a superior technology on the horizon, surely the supply chain participants such as battery manufacturers or OEMs would be funding it rather than lithium ion.
A final risk is that a lack of funding for mine capacity for lithium and other battery metals does not materialize in the next few years, limiting EV production and sales. This is a higher risk than the others mentioned and it remains to be seen how the industry will react and attract the billions of dollars of capital needed to build a resilient and transparent EV supply chain.
BNamericas: The mining sector is in the focus of global investors due to ESG practices. Do you believe that lithium projects can benefit from such a scenario?
Berry: Without a clear ESG strategy, a lithium mining company has no leg to stand on. Investors are demanding transparency in this increasingly strategic supply chain and those projects that can demonstrate their ability to produce lithium with a low carbon footprint are going to be major beneficiaries of this trend.
PLS Price at posting:
$1.19 Sentiment: Buy Disclosure: Held
(20min delay)
