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Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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A "Permanent" Lithium Shortage Is Looming

The number of warnings for new commodity shortages amid the energy transitions has just grown by two: Macquarie Bank and Credit Suisse recently warned investment clients that the supply of lithium will remain tight for the observable future, pushing prices higher continuously.

Such warnings are hardly a surprise as barely a day goes by without a buoyant story or two about surging EV sales, even if the surge is the only forecast for now. Yet the push to electrify transport appears unstoppable, creating a situation that will inevitably lead to higher lithium prices as it seems that the challengers of lithium-ion batteries have been quite slow to come to market.

Supply, on the other hand, has yet to catch up. 

In a Forbes article, Tim Treadgold cited Credit Suisse as saying “Following production cuts (when the price crashed), the lithium supply glut has ended and the market is now tightening as the EV revolution accelerates."

The bank added that this revolution could lead to a threefold rise in lithium prices by 2025. This, in turn, could eventually motivate supply expansion, which has been on hold ever since lithium prices slipped from 2018 heights to reach $5,000 per ton in mid-2020. Since then, Treadgold notes, prices have recovered to about $10,000 per ton but this is still half of the price the metal traded at in 2018 before the price crashed.

Long-term contract prices are the real problem, Reuters reported earlier this week in yet another warning about lithium shortages. 

Currently, lithium carbonate equivalent prices have recovered to some $12,000 per ton but a number of long-0term supply deals signed last year are discouraging producers from investing in production expansion, Benchmark Mineral Intelligence explains. 

As a result, this year the lithium market could see a deficit of as much as 25,000 tons. Things ill get even worse for supply from 2022 onwards, BMI also said, as quoted by Reuters.

"Unless we see significant and imminent investment into large, commercially viable lithium deposits, these shortages will extend out to the end of the decade," analyst George Miller said.

Yet some producers are expanding their capacity to meet the surging demand for the battery metal.

“The industry is rapidly growing and we have a very upbeat forecast on lithium consumption,” the vice-chairman of Chinese Gangfeng Lithium, one of the world’s largest lithium suppliers, told Bloomberg recently.

Because of this upbeat forecast, Gangfeng Lithium is expanding its production capacity; but here’s the twist: even with the expansion, the company expects prices to keep rising for a while yet. The long-term trend certainly suggests it.

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Lithium mined for batteries accounted for just 9 percent of all lithium produced back in 2000. But by 2020, the share of lithium produced for batteries had surged to 66 percent and is set to further jump to account for more than 90 percent of all lithium applications by 2030, according to estimates from IHS Markit

Lithium price forecasts appear to assume the success of the EV revolution, and they have a good reason for this assumption—namely, strong government support for EV sales. However, as Gangfeng Lithium’s Wang Xiaoshen noted in his talk with Bloomberg, there is always a possibility that EV takeup will be slower than expected.

This possibility is becoming increasingly distinct exactly because of the surge in the prices of things like lithium and copper, which are used in the construction of EVs. The higher the raw materials, the higher the price of the finished product and although pro-net-zero governments have been very generous with EV subsidies, perhaps they would eventually draw a line somewhere. If EVs get more expensive, buyers will have less incentive to switch to an EV from their gasoline cars and the EV revolution will stumble until prices fall back down.

By Irina Slav for Oilprice.com

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