Home / Columns / Why are lithium prices skyrocketing?
37.6
π Economics π Energy

Why are lithium prices skyrocketing?

Maria Eugenia Sanin
María Eugenia Sanin
Lecturer in Economics at Université Paris Saclay and Research Associate at École Polytechnique (IP Paris)
Key takeaways
  • According to Benchmark Mineral Intelligence (BMI), the price of spodumene, a lithium-rich raw material, increased by almost 480% between January 2021 and January 2022.
  • The Association of European Automotive and Industrial Battery Manufacturers forecasts that the value of the European battery market will grow from €15bn in 2019 to €35bn in 2030.
  • Underestimating the size of this market has hampered the flow of capital to the industry along the value chain, meaning that demand is not being met at present.
  • In order to improve the situation in Europe there is a need to invest in European lithium mining and the sector's value chain.

Accord­ing to Bench­mark Min­er­al Intel­li­gence (BMI)1, the price of the lithi­um-rich raw mate­r­i­al spo­dumene rose by near­ly 480% between Jan­u­ary 2021 and Jan­u­ary 2022. In Jan­u­ary, for exam­ple, it jumped 45.5% to $2,400 per ton, up from $1,650 in Decem­ber. Sim­i­lar­ly, the price of lithi­um car­bon­ate has increased five­fold over 2020 and sim­i­lar price increas­es have been record­ed for lithi­um hydrox­ide (lithi­um refined to var­i­ous stages of puri­ty) over the past year. BMI is fore­cast­ing that lithi­um prices will con­tin­ue to increase for at least the next six months. But, what are the rea­sons for this stag­ger­ing increase?

In 2019, eco­nom­ic mar­ket play­ers thought that the sup­ply of lithi­um was much high­er than demand and that its price would go down2. The sit­u­a­tion is com­plete­ly the oppo­site now and we are observ­ing a very high increase in demand.

Lithi­um is an impor­tant ele­ment in sus­tain­able ener­gy appli­ca­tions. Lithi­um-ion bat­ter­ies, for exam­ple, dom­i­nate today’s mar­ket for recharge­able pow­er stor­age thanks to the element’s low mass, large reduc­tion poten­tial and high ener­gy den­si­ty. These devices are also increas­ing­ly being used for bat­ter­ies in elec­tron­ics from smart­phones to tele­vi­sion as well as to store ener­gy pro­duced by solar pan­els and wind tur­bines and in elec­tric cars.

Indeed, the asso­ci­a­tion of Euro­pean Auto­mo­tive and Indus­tri­al Bat­tery Man­u­fac­tur­ers now fore­casts3 that the EU bat­tery mar­ket val­ue will grow from €15bn in 2019 to an esti­mat­ed €35bn in 2030 — with lithi­um-ion account­ing for about half. The glob­al mar­ket val­ue will grow from €90bn to €150bn, so the price of lithi­um is unlike­ly to decrease in the near future.

Lithium and the energy transition

Europe’s New Green Deal, for exam­ple, which aims for car­bon-neu­tral­i­ty for the con­ti­nent by 2050, aims to slash green­house gas emis­sions by 55% by 2030 com­pared to 1990s lev­els and to reduce new car emis­sions to zero by 20354. This goal will require boost­ing the share of renew­ables to 40%. Accord­ing to the World Bank5, the pro­duc­tion of min­er­als, such as graphite, lithi­um, and cobalt, would need to increase by near­ly 500% by 2050. And the Euro­pean Coun­cil on For­eign Rela­tions esti­mates6 that to achieve car­bon neu­tral­i­ty by mid-cen­tu­ry, it will require 18 times more lithi­um than it cur­rent­ly uses by 2030 and almost 60 times more by 2050.

We were fun­da­men­tal­ly wrong in pre­dict­ing what would hap­pen. This is not sur­pris­ing, as experts have often under­es­ti­mat­ed the adop­tion of new tech­nolo­gies. Renew­able ener­gy is a good exam­ple. Even though their adop­tion has grown expo­nen­tial­ly, the Inter­na­tion­al Ener­gy Agen­cy’s World Ener­gy Out­look, for exam­ple, has con­sis­tent­ly under­es­ti­mat­ed them year after year7. A sim­i­lar sit­u­a­tion has occurred with lithium. 

Under­es­ti­mat­ing the impor­tance of this mar­ket and the bat­tery mar­ket in gen­er­al has ham­pered the flow of cap­i­tal into the indus­try along the val­ue chain, mean­ing that demand is not cur­rent­ly being met and we will strug­gle to meet the high demand in the near future; for exam­ple, in elec­tric cars, such as those from Tes­la, for which there is a wait­ing list of months.

Difficult to mine and process

Anoth­er rea­son for the high price of lithi­um is that, although lithi­um is a rel­a­tive­ly abun­dant met­al on Earth, it is not eas­i­ly extract­ed. Cur­rent­ly, it is extract­ed from deposits of a min­er­al called peg­matite and from brines by solar evap­o­ra­tion – an expen­sive and inef­fi­cient process that can take more than a year. Explor­ing for new sources can take 3–5 years, set­ting up min­er­al pro­cess­ing 2–3 years, and organ­is­ing the whole sup­ply chain and qual­i­fy­ing the work­force can also take a long time.

This is quite an excep­tion­al sit­u­a­tion: almost all the lithi­um we have in the world today comes from a hand­ful of places in the world: 6 min­ing oper­a­tions in Aus­tralia, 2 brine oper­a­tions in Latin Amer­i­ca (one in Argenti­na and one in Chile) and two (one brine and one min­er­al) in Chi­na. Almost all of its resources are then sent to Chi­na where 70% of lithi­um-ion bat­ter­ies are pro­duced8. This pos­es the prob­lem of strate­gic depen­dence for West­ern economies as well as bot­tle­necks. Break­ing this depen­den­cy will take a lot of time and effort, which, com­bined with the cur­rent geopo­lit­i­cal ener­gy cri­sis, will inevitably dri­ve up lithi­um prices – at least in the short term.

What should we do?

There are resources avail­able in Europe and some projects are grad­u­al­ly being set up, but their fate is still uncer­tain. Beyond the resource, the con­cen­tra­tion in the bat­tery pro­duc­tion mar­ket in Chi­na rep­re­sents a very impor­tant bar­ri­er for the devel­op­ment of the elec­tric car, in par­tic­u­lar to achieve the decar­bon­i­sa­tion objec­tives for pri­vate trans­port that Europe has set itself. This is where we can move faster by installing more gigafac­to­ries. Pre­dic­tions indi­cate that we will have 35 gigafac­to­ries by 2035, with Ger­many as the first des­ti­na­tion fol­lowed by France and Italy.

There are basi­cal­ly two things we need to think about now to improve the sit­u­a­tion in Europe: the first is to invest more in lithi­um extrac­tion in coun­tries where it is more eco­nom­i­cal by diver­si­fy­ing where it comes from and our part­ners; the sec­ond is to invest in the whole val­ue chain of the sec­tor by posi­tion­ing our­selves as a key play­er in bat­tery pro­duc­tion. Lithi­um for bat­ter­ies has to be of a spe­cif­ic qual­i­ty and its extrac­tion is much more com­plex than that of coal, for exam­ple, so we have to invest in tal­ent. This is where geopol­i­tics can become an issue, because at the moment we are depen­dent on Chi­na for qual­i­ty lithi­um pro­cess­ing. To solve this depen­den­cy, the US and Europe will have to join forces with coun­tries like Chile, Argenti­na, and Aus­tralia. Doing so with the lat­ter will be more com­pli­cat­ed, as Aus­tralia and Chi­na cur­rent­ly have very good trade relations.

Interview by Isabelle Dumé
1https://​www​.bench​mark​min​er​als​.com/
2https://​www​.spglob​al​.com/​e​n​/​r​e​s​e​a​r​c​h​-​i​n​s​i​g​h​t​s​/​a​r​t​i​c​l​e​s​/​w​h​y​-​l​i​t​h​i​u​m​-​h​a​s​-​t​u​r​n​e​d​-​f​r​o​m​-​g​o​l​d​-​t​o​-​d​u​s​t​-​f​o​r​-​i​n​v​e​stors
3https://www.eurobat.org/news-publications/press-releases/492-avicenne-study-eu-battery-demand-and-supply-2019–2030-in-a-global-context-shows-that-in-the-next-decade-lead-and-lithium-batteries-are-critical-to-clean-energy-transition
4https://ec.europa.eu/info/strategy/priorities-2019–2024/european-green-deal/delivering-european-green-deal_en
5https://​www​.world​bank​.org/​e​n​/​n​e​w​s​/​p​r​e​s​s​-​r​e​l​e​a​s​e​/​2​0​2​0​/​0​5​/​1​1​/​m​i​n​e​r​a​l​-​p​r​o​d​u​c​t​i​o​n​-​t​o​-​s​o​a​r​-​a​s​-​d​e​m​a​n​d​-​f​o​r​-​c​l​e​a​n​-​e​n​e​r​g​y​-​i​n​c​r​eases
6https://​ecfr​.eu/​a​r​t​i​c​l​e​/​t​h​r​e​e​-​k​e​y​-​a​r​e​a​s​-​o​f​-​e​u​r​o​p​e​s​-​c​l​i​m​a​t​e​-​d​i​p​l​o​macy/
7https://​pub​li​ca​tions​.iadb​.org/​e​n​/​f​r​o​m​-​s​t​r​u​c​t​u​r​e​s​-​t​o​-​s​e​r​v​i​c​e​s​-​t​h​e​-​p​a​t​h​-​t​o​-​b​e​t​t​e​r​-​i​n​f​r​a​s​t​r​u​c​t​u​r​e​-​i​n​-​l​a​t​i​n​-​a​m​e​r​i​c​a​-​a​n​d​-​t​h​e​-​c​a​r​i​b​b​e​a​n​-​e​x​e​c​u​t​i​v​e​-​s​u​mmary
8https://​www​.iea​.org/​r​e​p​o​r​t​s​/​t​h​e​-​r​o​l​e​-​o​f​-​c​r​i​t​i​c​a​l​-​m​i​n​e​r​a​l​s​-​i​n​-​c​l​e​a​n​-​e​n​e​r​g​y​-​t​r​a​n​s​i​t​i​o​n​s​/​e​x​e​c​u​t​i​v​e​-​s​u​mmary

Contributors

Maria Eugenia Sanin

María Eugenia Sanin

Lecturer in Economics at Université Paris Saclay and Research Associate at École Polytechnique (IP Paris)

María Eugenia Sanin leads international research projects and supervises numerous PhD students at the University of Paris Saclay. She has been a consultant in energy and environment for multilateral organisations as well as for the public and private sector in America, Europe and Africa. A post-doctoral fellow at Ecole Polytechnique, María Eugenia Sanin holds a PhD from the Catholic University of Leuven and a BA from the Uruguayan University UDELAR.