Soaring demand for key energy transition minerals and supply chain issues have propelled lithium prices to record highs, threatening to unravel a decade of steady declines in battery costs. Lithium prices hit a record high at the start of 2022, and analysts say that the rally still has legs to continue even higher. The surging price of one of the battery pack’s key metals is already exerting enormous cost pressure on battery production, while demand continues to soar as nearly every major carmaker is developing electric vehicles (EVs) and aiming to significantly boost zero-emission car sales this decade.
Yet, the highest-ever price of lithium—with no signs of a near-term slowdown—is raising the cost of battery packs after a decade of continuous cost declines. This year could see the first rise in battery prices since 2010, potentially undermining global efforts to speed up the adoption of EVs and clean energy technologies, analysts say. Carmakers could pass on the higher battery pack prices to consumers, pushing back the expected date of price parity between EVs and conventional vehicles by two years.
Lithium Prices Soar To Record
On December 31st, the price of Battery Grade Lithium Carbonate EXW China exceeded the threshold of $40 per kilogram, or $40,000/ton, for the first time ever, according to data from Benchmark Mineral Intelligence. Lithium carbonate prices within China reached a high of $41,925/ton at the end of 2021.
Benchmark lithium carbonate prices in China jumped by nearly 500 percent throughout 2021, Benchmark Mineral Intelligence’s chief executive Simon Moores said.
Early transactions from 2022 suggest that “lots of legs” are left in this rally, noted Caspar Rawles, Chief Data Officer at Benchmark Mineral Intelligence.
Related: Study: The Uptake Of EVs In Europe Is About To Explode In the week to January 6, lithium carbonate prices in China continued to rise as consumers restock ahead of the Chinese New Year festivities at the end of January and early February amid persistently tight supply. This pushed prices higher in other regions, too, such as Europe and the United States, Fastmarkets said last week.
The prospects for the coming months and years are also very bullish because new supply projects have faced some challenges.
“Customers are realizing that new supplies are very difficult to bring on,” Tony Ottaviano, chief executive at Australian lithium miner Liontown Resources, told Bloomberg.
It’s unlikely that lithium prices would crash soon, unlike in previous commodity cycles, Gavin Montgomery, Research Director, Battery Raw Materials at Wood Mackenzie, told Nikkei Asia.
“We’re entering a sort of new era in terms of lithium pricing over the next few years because the growth will be so strong,” Montgomery said.
In other words, industry executives and analysts believe that lithium prices will stay high for years to come.
Lithium Price Surge Raises Battery Costs
That’s a boon to lithium producers, but a bane of battery pack prices, which had dropped a staggering 89 percent between 2010 and 2021.
Lithium-ion battery pack prices were above $1,200 per kilowatt-hour in 2010, but they had dropped in real terms to $132/kWh in 2021, BloombergNEF’s annual battery price survey showed in November.
Li-ion battery prices dropped by 6 percent from $140/kWh in 2020 to $132/kWh 2021, but they could rise to $135/kWh in 2022 in nominal terms due to higher raw material prices, BloombergNEF said.
According to the research provider, even low-cost chemistries like lithium iron phosphate (LFP), which is particularly exposed to lithium carbonate prices, have felt rising costs throughout the supply chain in recent months. Since September, Chinese producers have raised LFP prices by between 10-20 percent, BloombergNEF has estimated.
If other technology improvements cannot mitigate the higher cost of raw materials, the point of breaking below the critical threshold of $100/kWh battery pack price could be pushed back by two years from BloombergNEF’s current expectation of 2024.
High Battery Prices Could Slow EV Rollout
“This would impact EV affordability or manufacturers’ margins and could hurt the economics of energy storage projects,” the research provider said.
Higher battery price “creates a tough environment for automakers, particularly those in Europe, which have to increase EV sales in order to meet average fleet emissions standards,” said James Frith, BNEF’s head of energy storage research and lead author of the report.
“These automakers may now have to make a choice between reducing their margins or passing costs on, at the risk of putting consumers off purchasing an EV,” Frith added.
If legacy automakers cannot secure battery packs at relatively affordable prices, they would lose in the global race to produce EVs as affordable to consumers as similar conventional models, Sanshiro Fukao, a senior fellow at the Itochu Research Institute, told Nikkei Asia.
High raw material prices and tight markets for metals key to the energy transition could mean more expensive EVs than initially expected and some carmakers failing to meet their ambitious EV targets, Fukao added.
“Today, the data shows a looming mismatch between the world’s strengthened climate ambitions and the availability of critical minerals that are essential to realising those ambitions,” Fatih Birol, Executive Director of the International Energy Agency (IEA), said last year.
“Left unaddressed, these potential vulnerabilities could make global progress towards a clean energy future slower and more costly – and therefore hamper international efforts to tackle climate change,” Birol noted.
By Tsvetana Paraskova for Oilprice.com
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