In the current year, we have witnessed a gravity-defying commodity rally after the shuttering of Ukrainian ports, sanctions against Russia and disruption in Libyan oil production sent energy, crop, and metal buyers scrambling for replacement supplies. The price of copper doubled; wheat more than doubled while global indices of commodity prices almost tripled from April 2020 to March 2022.
Unfortunately, the prices of many commodities tumbled this summer led by crude prices which have crashed nearly 40% from their June peak.
One commodity though has been exempt from the commodity selloff: lithium. Over the past 18 months, lithium prices have rocketed more than 500% amid supply chain bottlenecks and robust demand for electric vehicles. Although the lithium rally has lost some momentum, there are several solid reasons why it still could have legs to run including no major mines expected to come online over the next few years and explosive EV growth.
Meanwhile, stocks of lithium miners have continued to outperform the broader market, with SQM (NYSE: SQM) having gained 89.7% in the year-to-date; Livent Corp. (NYSE: LTHM) +23.3% and Albemarle Corp. (NYSE: ALB) +16.1%.
Here are some key developments on the lithium scene.
Source: Trading Economics
#1. EV and Battery Makers Securing Lithium Supplies
A major supply squeeze is one of the biggest reasons why lithium prices have shot up over the past year or so. Goldman Sachs has argued that the most “significant” new lithium supply will come from China, where companies have invested in new hard rock and brine projects. However, Benchmark Mineral Intelligence has countered this view by pointing out that known domestic Chinese spodumene and other hard rock resources are of low quality, which is the main reason why Chinese converters are increasingly turning to Australia for supply instead. Related: Xi Is Set To Be Re-Elected As China’s Leader
And now EV and li-ion battery manufacturers are moving to secure future lithium supplies. LG Energy Solution (LGES) has signed two MoU’s with Canadian miners to secure lithium supply. LGES has struck deals with Electra Battery Materials Corp. (NASDAQ: ELBM), Snow Lake Resources (NASDAQ: LITM) and Avalon Advanced Materials Inc. (OTCQX: AVLNF) at a ceremony held in Toronto in a bid to establish a battery supply chain within North America. LGES is one of the world's top electric vehicle battery makers, supplying the likes of Tesla Inc. (NASDAQ: TSLA) and General Motors (NYSE: GM).
Meanwhile, Chinese EV manufacturer NIO Inc. (NASDAQ: NIO) has taken a 12% stake in lithium firm Greenwing. The two companies entered into a strategic financing deal, with NIO agreeing to pay A$12M (~USD7.8M) to subscribe for ~21.82M Greenwing shares. NIO will hold ~12.16% of Greenwing upon completion of the transaction and have the right to be nominated to the company's board of directors as long as it maintains at least 10% stake.
According to Stockhead deputy editor Reuben Adams, the world has more than 300 new mines to feed a 500% increase in battery demand by 2035. This in effect means ~74 new lithium mines with an average size of 45,000 tonnes need to be built over the next decade or so.
And there’s a slew of battery factories coming up that will gobble up that lithium. According to the U.S. Department of Energy, 13 new battery cell gigafactories are expected to come online in the U.S. by 2025.
Apart from Tesla’s new ‘Gigafactory Texas’ in Austin, Ford Motors (NYSE: F) has lined up 3 gigafactories; one in Northeast of Memphis, TN, and two in Central KY, with the latter two being a joint venture between the company and South Korea’s energy holding conglomerate SK Innovations. General Motors plans to build no less than four gigafactories, with one being a JV with LG Chem (OTCPK: LGCLF) and the other three being JVs with LG Energy Solution.
#2. Argentine state-run miners to explore for lithium
For the first time ever, Argentine state-run miners will begin prospecting for lithium. In a joint statement released on Monday, YPF (YPFD.BA) lithium units, YPF Litio and Y-TEC will start work on a 20,000 hectare area lithium prospecting project in Fiambala in western Catamarca province in partnership with local mining firm Catamarca Minera y Energetica. The project aims to identify the highest grade lithium concentrations in the Fiambala salt flats.
Argentina is the world's fourth biggest lithium producer with around 20 other lithium projects currently under development. However, virtually all the production is done by foreign or private miners, with the government not involved.
"Now for the first time we have the possibility of a national company having a presence in obtaining the resource," Roberto Salvarezza, chairman of the boards of both YPF units, has told Reuters.
Argentina currently produces around 8% of global lithium, much lower than Chile’s 22% slice of the global market. However, Argentina has ample potential to grow its lithium production considering that it’s home to the world's second largest lithium reserves, with 19.3 million tonnes according to the U.S. Geological Survey.
#3. Explosive EV Market Growth
The global EV revolution has become an unstoppable trend and a major factor driving strong lithium demand.
According to projections by BloombergNEF, passenger EV sales will hit 21 million units in 2025, representing a nearly 220% jump compared to 2021 levels. “EV manufacturers are contemplating a market for battery raw materials that is very tight for the years ahead. The battery supply chain will require significant near-term investment to avoid a supply crunch,” the clean energy prognosticators have said.
Meanwhile, the supply bottlenecks and global inflation that have caused the battery cost trend to reverse are expected to only be transitory while cyclically high gas prices continue acting as an incentive to switch to electric.
“Some of the factors that are driving high battery raw material costs--war, inflation, trade friction--are also pushing the price of gasoline and diesel to record highs, which in turn is driving more consumer interest in EVs,” BNEF analysts have said.
By Alex Kimani for Oilprice.com
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