Why are lithium prices skyrocketing?

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.

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.

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.

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