The outlook for the lithium sector over a ten-year horizon is very optimistic, against a backdrop of rapid growth in production and demand and numerous opportunities in various countries, according to research agency Fitch Solutions and Country Risk.
He adds that the lithium backdrop is “as bright as ever” as the acceleration towards decarbonization and electrification of vehicles and energy storage continues.
The sector is also evolving rapidly and will see key changes in the years to come, the agency notes, adding that this will be influenced by improving demand and price fundamentals as the market continues to see the emergence of new ones. players in various regions, from the geographical point of view of production and consumption, as well as from the point of view of the competitive landscape.
However, constant technological advancements in supply and demand pose risks to the market outlook, warns Fitch Solutions, noting that lithium is now seen as a “strategic mineral,” which will likely lead to increasing government intervention. in its production and supply.
The lithium supply landscape will therefore change rapidly and radically over the next few years, the agency predicts.
Fitch Solutions predicts that global lithium production will more than triple, from 442,000 tonnes of lithium carbonate equivalent (LCE) in 2020 to 1.5 million tonnes of LCE by 2030.
Well-established lithium-producing countries will experience further growth, while a number of new lithium-producing markets will emerge over the next ten years.
Production growth is expected to accelerate in Australia, which Fitch Solutions says will remain the largest lithium producer until 2030.
According to the agency’s forecast, the country’s production is expected to nearly triple in the period 2020-2030, while Chile and China will also more than double their production, with Brazilian production expected to increase fivefold.
Although Fitch Solutions suggests that Argentina will also see significant growth, production will “only” double.
Amid growing interest, government support, and increased capital for lithium projects, a notable number of new lithium-producing countries will emerge and account for a significant share of global production, the agency adds, noting that these mainly include developed markets such as the United States, Canada, Germany and some other European countries, as well as developing countries such as Serbia and Zimbabwe.
Additionally, the upcoming boom in energy storage, where rechargeable batteries are the dominant aspect of the electric vehicle (EV) revolution, will be the growth engine for the upstream lithium industry, says Fitch Solutions.
He adds that he based his lithium demand expectations on his automotive team’s electric vehicle sales forecast and expects lithium consumption for the electric vehicle industry to increase until. to seven times between 2020 and 2030, while annual sales of electric vehicles will increase from 3.1 to 2030 million units to 21.2 million units.
The EV sector is generally expected to account for around 80% of total lithium demand by 2030, compared to between 40% and 45% currently.
In addition to the exceptional growth in the EV sales segment, other trends, such as the very likely high popularity of battery swap stations, mean that the actual number of EV batteries manufactured will exceed the number of EVs sold. , emphasizes Fitch Solutions.
Outside of the automotive sector, utility batteries, portable electronics and electric mobility devices (electric bicycles) will also contribute to demand, the agency adds, noting that the location of the batteries will further stimulate geographic demand for lithium. .
China is expected to remain by far the largest battery maker for now (accounting for around 80% of installed manufacturing capacity as of 2020), but other existing manufacturers including Japan, South Korea, US -United and Hungary, will most likely register an increase. in battery manufacturing, says Fitch Solutions.
He further adds that relatively new entrants, including Germany, Poland, Sweden, France, UK, Thailand and Indonesia, will also emerge as increasingly important manufacturers.
“As part of our expanded coverage of lithium and cobalt battery minerals in 2021, in May 2021 we launched a new lithium price forecast – for carbonate and hydroxide – adding to our existing portfolio of forecasts for prices of minerals and metals, ”comments Fitch Solutions, noting that the agency estimates that the lithium market will be tight over the next five years, as supply drives demand.
Fitch Solutions predicts that carbonate and hydroxide prices will tend to increase and that a sharp acceleration in demand for lithium-ion (Li-ion) batteries will outpace growth in supply, keeping prices high.
The agency predicts that Chinese 99.5% lithium carbonate prices will average $ 13,450 / t this year and $ 15,025 / t in 2022, and for Chinese lithium hydroxide monohydrate 56.5% , prices averaged $ 11,950 / t this year and $ 14,300 / t in 2022.
Price risks include faster-than-expected adoption of electric vehicles (upside risk of prices), faster-than-expected advance of new lithium mining technologies (downside risk), and faster progress battery recycling technology than expected (lower risk).
Another key price trend in the lithium sector is the rapid increase in a green premium, against a backdrop of increased demand for more environmentally friendly resources from downstream actors, who aim to improve transparency. and the sustainability of their supply chain, says Fitch Solutions.
He further notes that growing demand for the most sustainable lithium, coupled with tight supply, means OTC transactions, off-take agreements and long-term strategic sourcing partnerships are here to stay for years to come. to come up.
“This will keep the lithium market opaque to some extent. Lithium will remain more of a market for specialized chemicals (with customers requiring specific and often differentiated products) and less of a market for bulk commodities, ”comments the agency.
Technological advancements, meanwhile, are in different stages of development, with Fitch Solutions suggesting that the actual supply may increase faster than expected.
Currently, only hard rock and “conventional” brine resources (from salars) are used to produce lithium chemicals commercially on a large scale; it is estimated that around 65% of global production comes from hard rock lithium mines (eg Australia), while 35% comes from brines (in Latin America and China).
However, Fitch Solutions says a host of new players are developing new mining techniques, namely geothermal brines and sedimentary (clay) deposits, which could disrupt primary lithium supply.
As these new extraction techniques develop, the structure of the industry, the shape of cost curves, and environmental, social and governance (ESG) considerations will continue to evolve.
The upcoming development of lithium recycling could also alleviate some of the long-term lithium supply problems.
Unlike some other battery minerals, such as cobalt and nickel, which are vulnerable to future developments in battery chemistry as manufacturers aim to develop more efficient, durable and less expensive batteries, lithium is used in a to a large extent in all current batteries as well as in these. in development.
In addition, Fitch Solutions notes that the lithium content of the promising next generation of batteries is even higher than that of the batteries that will dominate from 2021 to 2025.
“Although lithium is a critical feedstock for advancing decarbonization strategies, the controversial nature of the sustainability of lithium operations will come to the fore. We anticipate that the discussion around the environmental impact of the sub-sector will focus on two areas, namely sustainability in lithium mining and recycling of Li-ion batteries. “
The extraction of lithium from salt brines will come under increasing scrutiny in the coming years, and the threat of pollution will bring a persistent risk of social unrest, while, as the environmental standards will tighten around the world, proper recycling of Li-ion batteries will be necessary. to mitigate negative ecological impacts.
The reuse of Li-ion batteries from electric vehicles will also lead to an upward risk to the battery life cycle, while the collection of lithium from used Li-ion batteries will also serve as an alternative for the materials. first critiques of conventional extraction techniques. In the short term, the growth of the battery recycling industry will continue to be constrained by costs and policy challenges.
Against this backdrop, Fitch Solutions suggests that more technological advancements will need to occur over the next decade to make recycling a sustainable source of battery grade lithium.
Another key growing theme in the lithium sector is that of strategic sourcing, access to this essential raw material and the increasing politicization of the battery supply chain.
Fitch Solutions says the lithium sector is likely to see increasing government intervention, either to secure this strategic material, boost local production, or to benefit from strong fundamentals by raising taxes or controlling the sector.
Accessing lithium supply is characterized by a number of challenges, including relative geographic concentration and a myriad of key political and sustainability risks.
First, on the supply front, the lithium market is geographically concentrated, both on the upstream front (extraction, dominated by Australia, Chile, China) and downstream (chemical transformation, dominated by China).
Added to this market structure are geopolitical risks and US-China tensions, and Fitch Solutions says the increasingly strained relationship between the West (a burgeoning battery maker and a key end-market for vehicles electric) and China (a dominant lithium processing player and current battery leader) manufacturer) increases the risks associated with resilient supply chains.
“The current trend towards de-globalization and increasing efforts to localize supply chains to some extent mean that governments are likely to increase local supply (e.g. lithium production in the EU and to states United) or to promote long-term supply agreements. “
Finally, questioning the sustainability benchmarks of lithium mining will also lead to a race from battery and electric vehicle manufacturers and even their governments to access the most sustainable raw material, notes the agency.