Good News & Bad News, page-11410

Jun 9th 2022
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ithium is not as glamorous as gold or platinum. But it has quickly become one of the world’s most important metals. It is a key component in batteries, so the surge in demand for electric vehicles and other battery-powered technology has led to a corresponding increase in demand for the stuff. As supply has failed to keep up, prices have soared. The spot price of lithium carbonate, a compound that can be converted into lithium, rose by 477% in 2021, and a further 77% this year. But more recently several banks have predicted that the bull market for lithium was over and that its price would soon crash. Are they right?

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Goldman Sachs, a bank, estimates that in 2021 481,000 tonnes of lithium carbonate and other lithium sources were produced—falling short of demand by 51,000 tonnes. But in the coming years the bank expects supply to increase rapidly, as mining companies start a host of projects in anticipation of booming demand. Much of that supply, analysts think, will come from China. It may start to take greater advantage of its copious deposits of lepidolite, a mineral that produces lower-grade lithium, and so currently accounts for only a tiny share of commercial supply. Several mines are already up and running. That, along with growth elsewhere, will supposedly lead to a lithium surplus as soon as this year. By 2025 Goldman thinks supply will more than triple from 2021 levels, outstripping demand by 23%. The oversupply, it forecasts, will push spot prices down from $53,982 a tonne, its estimate for this year’s average price, to $11,000.
Lithium supply will doubtless increase. Argentina has 13 new projects in development and Bolivia’s government plans to expand production too. Along with domestic lepidolite projects, Chinese companies are funding the construction of new mines in Africa, including a big one in Mali that will extract spodumene, a rocky mineral which is roasted and crushed to release high-grade lithium. New technology could also help: EnergyX, an American firm, hopes to speed up lithium extraction from salt flats with a polymer membrane that filters the stuff directly from brine.
But Goldman’s forecasts are probably over-optimistic. Joe Lowry, a lithium-industry expert, reckons lepidolite cannot supply as much growth as the bank expects because it is hard to extract lithium from it. Benchmark Minerals, a research firm, estimates that Chinese lepidolite processing has a waste-to-ore ratio of 20-to-one. Setting up new mines can take between five and ten years. “Lithium projects often disappoint in terms of the timeline,” says Benchmark’s Henry Sanderson. All the while, demand for electric cars and batteries will continue to grow.
That means a surplus is unlikely, at least in the immediate future. “Supply for 2022-24 was determined by events five to ten years ago,” says John Startin of Evercore, a bank. Benchmark thinks the supply deficit will grow this year; it does not foresee it coming into balance until 2026, and even then, only briefly. The spot price, Mr Sanderson reckons, may decline, but the overall lithium price—largely determined by fixed contracts—will remain stable. For carmakers and other buyers, that is bad news; for miners, it is encouraging. ■