Lithium prices tipped to rise 20 per cent by 2017 on demand for electric cars
October 27, 2015 - 5:42PM
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The commodities sector has had few winners lately Photo: Rob Homer
Prices for lithium are forecast to rise strongly in the next two years, with widespread adoption of electric cars tipped to be a game changer for the third element on the periodic table.
While most demand for lithium carbonate comes from industrial companies producing ceramics and glass, Citi analyst Matthew Schembri believes demand will rise significantly when electric vehicles become mainstream and need the commodity for lithium-ion batteries.
Citi is very bullish about electric cars, and forecasts production of pure electric models (not hybrids) like the Nissan Leaf or the Tesla Model S to rise from about 150,000 in 2015 to about 290,000 in 2016.
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The commodities linked to battery technology are offering miners some rare optimism. Photo: Bloomberg
By 2020, Citi expects 1.04 million electric cars to be in production, implying sevenfold growth over five years.
In an extensive study of what the boom in electric cars will mean for lithium carbonate markets, Mr Schembri said demand for the commodity would rise almost 65 per cent over the next five years.
"The mass adoption of pure electric vehicles such as the Tesla Model S or the Nissan Leaf would be a boom to the lithium market," he said.
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Nissan has built a one-off electric ute based on its Leaf hatchback.
Electric vehicles account for about 6 per cent of lithium carbonate demand but would be 30 per cent of demand by 2020 under Mr Schembri's numbers.
The rise in demand is expected to lift prices for the commodity.
Mr Schembri noted that prices for lithium carbonate had already risen from $US4900 per tonne to $US5900 per tonne over the past 13 months, and he predicts prices will rise a further 20 per cent before a wave of new production in 2017 or 2018.
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Panasonic and Tesla have reportedly reached a deal that will help create a new lithium-ion battery factory in the US.
"We continue to see a tight market out to 2017, with prices rising to $US7000 per tonne before new production is incentivised and dampens prices," he said.
"A strong demand profile does ensure prices remain at a nominal $US6000 per tonne for the rest of the decade."
As with most commodities, Australia is likely to supply lithium to global markets. This is likely to come from the mining and processing of spodumene, a hard rock lithium-bearing mineral found in Western Australia and elsewhere.
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Demand for lithium could soar on the back of modern battery technology.
Mr Schembri said spodumene mining was typically a more expensive but faster approach compared with the traditional sourcing of lithium, which is by extracting lithium-rich brine concentrate from beneath salt lakes.
Mr Schembri said the brine extraction model was most commonly available in South American nations such as Argentina and Chile, which were likely to dominate the global supply of lithium longer term.
But in the near term, rising demand offers an opportunity for spodumene miners to get a foothold in the market while prices are strong.
ASX-listed companies seeking to produce a lithium concentrate in Australia through mining spodumene include Neometals, Galaxy Resources and Pilbara Minerals.
Shares in all three have either doubled or trebled in the past three months.
While not covered in the Citi report, graphite is also required for lithium-ion batteries, and several ASX-listed graphite producers have seen their share prices boom in recent years, with Syrah Resources the most notable example.
Other ASX-listed graphite producers include Valence Industries (which is already producing from its Uley project in South Australia), Tanzania-focused Kibaran Resources, Archer Exploration and Ardiden Limited.
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