Global lithium demand to triple over the next 10 years

The dramatic fall in lithium-ion costs over the last five years from US$900/kWh to US$225/kWh has improved the economics of electric vehicles and energy storage products as well as opening up new demand markets. Global battery consumption has increased 80% in two years to 70GWh in 2015, of which electric vehicles accounted for 35%. Global battery demand is expected to reach 210GWh in 2018 across EV, energy storage & traditional markets.

By 2025, global battery consumption could exceed 535GWh. This has major impacts on lithium. Global demand increased to 184kt Lithium Carbonate Equivalent (LCE) in 2015 (+18%), leading to a market deficit and rapid price increases. Lithium demand is expected to reach 280kt LCE by 2018 (+18% 3-year CAGR) and 535kt LCE by 2025 (+11% CAGR).

Global lithium supply late to respond

Global lithium production was 171kt LCE in 2015, with 83% of supply from four producers: Albemarle, SQM, FMC and Sichuan Tianqi. Supply has not responded fast enough to demand, and recent price hikes have incentivized new assets to enter the market. Orocobre (17.5ktpa), Mt. Marion (27ktpa), Mt. Cattlin (13ktpa), La Negra (20ktpa), Chinese restarts (17ktpa) and production creep should take supply to 280kt LCE by 2018.

The Electric Vehicle industry is the major demand market

The growth in demand for electric and hybrid car batteries is a driving factor. This growing market has been pioneered by Tesla in recent years, but the larger catalyst for global mass market uptake of EV technology is China, where government subsidies are in place for both passenger EV vehicles and commercial EV’s (buses and small trucks). Hybrids & plug-in hybrids currently dominate global EV sales, with full-electric EV’s accounting for only 0.6% of global auto sales in 2015. EV sales is expected to grow to over 16 million vehicles by 2025 with full electric EV sales rising to 3.0 million vehicles (2.6% of global sales, 6x the 2015 market). This market share gain should lift lithium consumption in EV’s from 25kt LCE in 2015 to 205kt LCE in 2025 (23% CAGR over the next 10 years).

Energy Storage an emerging market

Driven by the declining costs of lithium-ion batteries, battery storage is now economically feasible for a number of Energy Storage applications. Battery use in Energy Storage is expected to grow to be a 50GWh per annum market by 2025 (46% CAGR over next 10 years). Lithium-ion batteries should be the leading technology, with superior performance and rapidly falling costs helping ensure it will be the battery of choice in Energy Storage. As a consequence, it is expected that lithium battery consumption will reach 48GWh (54% CAGR), accounting for 97% of battery use in Energy Storage. As a result, lithium demand for this sector could increase from virtually nothing in 2015 to 34kt LCE in 2025 (6% of 2025 demand).

Market deficit driving global supply response

Lithium is produced from either brine-based deposits or from hard-rock mineral deposits. Lithium products derived from brine operations can be used directly in end-markets, but hard-rock lithium concentrates need to be further refined before they can be used in value-added applications like lithium-ion batteries.

The current lithium supply market is dominated by four major producers. Albemarle, SQM, FMC and Sichuan Tianqi accounted for 83% of global supply in 2015. An increase in lithium prices in the late 2000’s led to a wave of investment in mine expansions for South America-based lithium brine assets and increasing conversion capacity in China for hard-rock lithium feedstocks. However, stagnant global growth met an oversupplied lithium market, leading to depressed lithium pricing from 2013 until mid-2015.

Over the last 12 months, global lithium demand has surged, leaving a number of Chinese conversion plants searching for lithium feedstocks to be converted into value-added products. China currently has 115kt LCE installed capacity for hard-rock processing and only 55-60kt LCE of imports (mainly from the Greenbushes asset in Australia) and domestic production of 17kt LCE, leading to conversion plant utilization of 65% in 2015.

The capital-intensive brine operations, which account for 50% of global lithium supply, have been unable to respond quickly to market conditions and increase output. The subsequent supply shortage, particularly in China, has led to a significant surge in pricing; 1Q16 spot prices in China for battery-grade lithium carbonate and lithium hydroxide were 196% and 190% higher than six months ago, respectively. The lithium market will remain in deficit for 2016, suggesting that these elevated prices can hold to the end of this year. It is this market backdrop that is now incentivizing new projects into the market.

References: Deutsche Bank (DB) Markets Research, Lithium 101, May 2016