From the low-price environment and lithium’s extended supply chain to the emergence of standardized battery-grade compounds, here are the key themes that dominated the conversation among panelists during Fastmarkets’ webinar on “How Covid-19 has affected lithium markets” on June 23.
Lithium production has been free from any significant disruptions caused by Covid-19, and the current high stock levels would be sufficient to buffer the industry should they materialize, panelists said.
“For the time being there are no reasons to worry [about lithium production in Chile],” Daniel Jimenez, managing partner at iLiMarkets said.
“Mining has been deemed an essential industry, and the mines kept open with social distancing [protocols in place]. In case of disrupted supply down the line, high inventories are likely to keep lithium prices suppressed over the next year or two,” he added.
Lithium extraction and export operations in Chile, a key producer of lithium compounds, have not been affected so far by the increasing number of Covid-19 cases in the country.
A key lithium producer in Chile, US Albemarle, confirmed in an email to Fastmarkets that it was taking strict preventive measures at its operations in the South American nation, and has seen no effects on its lithium production, nor has it had to stop lithium production operations.
Prices capped until 2022
Lithium prices were likely to bottom out in the second half of 2020 or in 2021, but high stocks and a recession triggered by the Covid-19 pandemic will keep a more substantial price recovery in check until 2022 at the earliest.
“For a significant change in direction, we are looking at 2022 or 2023, but I do think we will see a flattening-out in the second half of 2020 and a slight adjustment upward in 2021,” Jimenez said.
“I think prices will flatten in the second half of 2020, and rise a bit off the low in 2021, but will be capped by high stocks,” Will Adams, Fastmarkets’ head of battery raw materials research, said.
Fastmarkets’ latest assessment of lithium carbonate, 99.5% Li2CO3 min, battery grade, spot prices cif China, Japan & Korea, was $6.50-8.50 per kg on June 25.
Fastmarkets' price for lithium hydroxide monohydrate, 56.5% LiOH.H2O min, battery grade, spot price, cif China, Japan & Korea, was assessed at $9.00-10.50 per kg on the same day.
Both assessments were down by more than 30% from a year ago, and both compounds were trading at their lowest since at least the fourth quarter of 2017, when Fastmarkets started to assess these lithium grades.
Lithium prices have broadly trended lower since the second quarter of 2018, in response to a modest uptake in electric vehicle usage, relative to the scale of increased lithium supply.
Covid-19 could discourage investment...
A low-price environment has been discouraging fresh production increases and investment in new lithium projects for much of the past 18 months, and the Covid-19 pandemic could exacerbate that trend.
“The uncertainty that Covid-19 has thrown into the market has not been good, and there is a flight to security,” Emily Hersh, managing partner at DCDB Group, said. “The good projects and management teams are in survival mode - that’s the reality.”
Investment in more remote areas could also become more expensive, Hersh added.
“A lot of these communities where exploration projects are located used to make use of local infrastructure as the jumping-off point – those communities have said ‘no’ to outsiders coming in, so the fear of contamination could raise exploration costs,” she said.
Speaking of the challenges of new investments in upstream capacity in Argentina, which was currently facing a debt and currency crisis, Hersh said: “Argentina is in crisis, as it always is. If you’re going to operate in Argentina, you need to wear your ‘crisis pants’.
“If you are talking about current lithium producers [in Argentina], they are in a different situation,” she added. “[They have] a different level of negotiation and of understanding than a new producer would.”
Since 2018, the government of Argentina has been tackling a number of economic challenges, such as an unsustainable build-up of debt and the rapid depreciation of its currency.
Argentina, with Chile and Bolivia, is also part of the so-called South American “lithium triangle” - an area rich in lithium reserves.
In April, French mining and metals group Eramet announced an indefinite suspension of construction at its Argentinian lithium production plant, citing the economic uncertainty sparked by the Covid-19 pandemic as the main reason.
…Which could create problems down the line
“By 2025, we need about 1 million tonnes [per year of lithium] and by 2030 we need 2 million tpy. To get to 2025, we have a ‘roadmap’, but the investment community needs to be aware of the opportunity the lithium sector offers in the long term, despite the low prices nearby,” Jimenez said.
“What happens when inventory is drawn down? Does the market have time to react?” Hersh said.
“Once we get a grip on Covid-19, things are looking good for EV demand recovery,” Adams said. “Governments are tying incentives in with CO2 emissions targets, and if buyers want to buy a car they might well decide to buy an EV because it does future-proof your purchase.”
Standards based on technology, not politics
The standards for lithium compounds used in battery applications should be set by battery manufacturers and original equipment manufacturers (OEMs), and be based on technological development, rather than by government authorities, Hersh and Jimenez said.
“The lithium chemicals [specifications] are driven by the technology, so changes in the lithium chemical industry will adapt to support [the desire of battery makers to make long-lasting batteries that give an extended driving range at the lowest cost],” Hersh said.
“This is an evolving story and will continue to evolve,” Jimenez added. “But [the standards] have to be set by technology and energy density, rather than what an authority wants to put in place.”
Adams said: “I think the standards will be set by the OEMs and the battery manufacturers. They know what they want in their batteries, and they have to provide guarantees on the life of their batteries… I think it is important that they have control over the specifications [for battery-grade applications].”
Following a consultation with lithium industry participants, on June 1 Fastmarkets amended the specifications of its battery-grade lithium carbonate and hydroxide price assessments to better reflect emerging norms in battery-grade chemistry.
To listen to the webinar again, please click here.