Four facets of the ongoing lithium gamble

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Australian Economy, Uncategorized

Lithium is the world’s soft silver-white lightest metal and often labeled as “white Petroleum” with its common usage in batteries. Lithium –ion batteries are lighter, more efficient, and more durable than any other technology and therefore energy storage utilization in electric vehicle, smart phones, camera, laptop power tools among other things. Lithium is today’s most demanded commodity wherein the prices are moving in upward direction continuously since 2015.

Rise in demand: Low carbon economy supports the usage of electric cars that work on lithium-ion batteries. Energy storage businesses have seen ramp up in factories due to the rising demand from automotive as well as industrial use. Tesla is building gigafactory at Nevada. They intend to produce 500000 electric cars in 2018. Accordingly, lithium requirement is huge and with rise in electric car volumes, the lithium would be emerging as scare resources reasoning its price moving upward. China is also promoting lithium –ion batteries and electric vehicle, mainly buses. Sales of new energy vehicles in China have almost tripled in the first ten months of 2015 as compared with the same period in 2014, to 171,000. Furthermore, the International Energy Agency expects around 40 million battery electric vehicle sales per year by 2050, as compared to the present annual battery electric vehicle sales of just 150,000. Along with electric cars, smart phone also needs lithium, and considering the increasing usage of smart phone, the demand for lithium is continue to ride upward in future. Lithium batteries are also looked at alternative energy storage, mainly supply in peak period. According to Goldman Sachs estimates, lithium demand could triple by 2025 as 1 percentage rise in electric vehicle would reason the lithium demand to rise by 70,000 tons per year.

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Supply outstripped by demand: Considering the rising demand for lithium ion batteries, many companies have started focusing on extraction of lithium while battery manufacturers are on the verge of setting up gigafactories. As per Namaska Lithium reports many companies are coming up with gigafactories after which the production is expected to triple by the year 2020 – which in turn is going to require a ton more lithium supply.

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Lithium-ion battery megafactories (Source: Namaska Lithium)

With these factories coming to stream, the production of lithium-ion batteries are expected to triple by 2020. However, the total 87 GWh should require 70,000 tonnes to 100,000 tonnes of lithium by 2021, and such supply does not exist. The current situation is that the demand is more than the supply and the situation is likely to remain the same for next two years.

Prices rising high: Lithium carbonate prices enhanced by 47% in the first quarter during the year against the average price in 2015. Based on the data provider Benchmark Mineral Intelligence, the increase in number of users of smartphone as well as electric vehicles, drove the demand for batteries.

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Lithium contract price (Source: Financial Times)

Significant investments: Lithium needs significant investment in production to meet future needs. Strong reserves of resource are available only if consumers are willing to pay the high cost of extracting lithium from seawater. This is an indicative of the physical challenges related with extracting metals from geological sources with ever-decreasing metal concentrations and also the rising costs related with recovering these metals. Rio Tinto spend $70 million in Jadar deposit and require another $20 million to conduct studies on to examine Jadar deposits. If mined, it is projected that it would be around 20% of total global supply of lithium. As prices continue to rise, explorers are venturing into production and extraction of lithium and lithium-ion batteries. Prospect Resources and Altura Mining Ltd have gained over 1958.8% and 672.73%, respectively, over the last 12 months. On the other side, rising lithium prices might result into more capacities coming up in the stream as explained earlier. This would likely result into supply outstripping the demand, which might have obvious impact on prices.

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