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Onshore lithiumopportunity worth $10b, says McKinsey

Australian lithium miners couldgenerate an extra $10 billion in annual revenues and create thousands morelocal jobs if all mined material was converted into higher value lithiumhydroxide before being exported.

Analysis by McKinsey found Australian lithium hydroxide plantscould be the world’s lowest cost producers over the life cycle of the asset,despite evidence that construction costs in Australia are higher than in rivalnations in north Asia and the Americas

The prediction that Australian lithium miners could makehandsome returns if they invest in more downstream processing infrastructurecomes as the Albanese government pushes for Australia to add value to mineralsresources.

Australia’s lithium industry has blossomed over the past eight years on surging demand from the manufacturers of lithium-ion batteries and electric vehicles.

The vast majority of Australian lithium is exported as spodumeneconcentrate with close to 6 per cent lithia content, a lower quality and lowerpriced product than lithium hydroxide.

McKinsey analysts said nearly 66 percent of Australian lithium exports would still be spodumene concentrate in2030, based on the industry’s stated plans for building lithium hydroxide processing capacity on Australian soil.

But if all spodumene concentrateproduction were converted to lithium hydroxide before being exported, Australiacould unlock extra annual revenues worth between $4.8 billion and $9.6 billion,said a report titled Australia’s Potential in the Lithium Market.

“The lithium hydroxide market maygenerate up to $10 billion per year in additional revenue for marketparticipants by 2030 with the potential to create jobs, diversify Australia’sraw materials industry, and support Australia’s push toward green energy,” itsaid.

“If Australia decides to convert allof its spodumene to lithium hydroxide, nearly 4000 additional workers will berequired to operate Western Australian plants by 2030.

”Australia has the skills, capital,and resources to secure that opportunity – if it can marshal those assetsefficiently.

“Refining lithium will thereforerequire disciplined coordination and collaborative innovation – and in a shorttimeframe, before the opportunity is lost.”

IGO Limited and Tianqi already operatea lithium hydroxide processing plant at Kwinana on Perth’s southern fringe,while Albemarle has two processing trains making lithium hydroxide at Kemertonnear Bunbury.

Albemarle has this year committed to doubling its Kemerton lithium hydroxide capacity, while Wesfarmers is also building a lithium hydroxide plant at Kwinana in partnership with Sociedad Quimica Y Minera (SQM) of Chile.

Leading knowledge centre

Those projects will mean close to 14per cent of global lithium hydroxide supply in 2030 will be made within 150kilometres of Perth, according to McKinsey’s numbers.

“That would be a meaningfulconcentration of human capital, which the Australian industry might capitaliseon to develop a leading knowledge centre for lithium hydroxide,” the reportsaid.

“That step could attract investment,which would in turn generate further knowledge in the space.”

Other companies like Mineral Resourceshave expressed interest in building lithium hydroxide processing plants inAustralia to serve their mines, but have lamented the higher cost ofconstruction here.

Mineral Resources has instead chosento buy stakes in two Chinese lithium hydroxide plants.

Pilbara Minerals is building a lithiumhydroxide plant in South Korea with its partner POSCO in the belief the project will cost 40 per cent less in the Asian nation.

While construction costs are higher,McKinsey believes Australian lithium hydroxide plants can be the world’s lowestcost producers if they are integrated with a mine nearby, as the cost oftransporting the spodumene long distances would be nullified.

“Our modelling suggests that Australiacould produce lithium hydroxide at approximately $6600 per tonne of LCE(lithium carbonate equivalent) assuming integration with lithium mining,compared with $10,400 per tonne of LCE for China,” said the report.

“Indeed, South Korea and Canada, theclosest countries to Australia from a cost perspective, still have costsapproximately 24 to 51 per cent higher than Australia’s. In addition,Australian plants would have the strategic advantage of a secure raw materialssupply.

“Our analysis also suggests thatexisting Australian lithium hydroxide refiners could achieve internal rates ofreturn (IRRs) of about 29 to 36 percent.”

McKinsey expects lithium hydroxidewill overtake lithium carbonate as the most consumed form of the metal between 2026and 2030.

Demand for lithium carbonate – thetraditional form of lithium used in the batteries that power calculators andcellphones – is projected to grow by about 2.65 times between 2022 and 2030.

Demand for Lithium hydroxide – achemical that allows greater energy storage and is preferred for electricvehicle batteries – will grow more than eight-fold over the same period,according to McKinsey’s analysis.

McKinsey predicts global demand forrefined lithium, a term that includes carbonate and hydroxide, will reach 3.06million tonnes in 2030. That forecast is more conservative than some lithiumminers have predicted.

US lithium giant Albemarle predicted in January that total refined lithium demand would reach 3.7 million tonnes by 2030.

Albemarle’s January prediction markedthe third year in a row that the company had upgraded its 2030 lithium demandforecast.

Albemarle produced more lithiumcarbonate than lithium hydroxide in 2022, but expects hydroxide volumes toovertake carbonate around 2024, and by 2027 it will be producing almost twiceas much lithium hydroxide as lithium carbonate.