Industrial lithium consumers may face struggle to maintain supply as battery sector steals scene

Lithium market participants have voiced concern about the ability to secure supply of industrial-grade lithium compounds due to an increasingly larger share of the market being taken up by the battery sector

Industrial lithium consumers may face struggle image

Electric vehicle battery module with lens flare effect. Concept of EV batteries maintenance.

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With long-term contract negotiations for next year’s supply unfolding, traditional industrial buyers spoke of surging demand from the battery sector globally and said they expect increasing procurement challenges and higher prices in the coming years.

In an increasingly tight global market, major global suppliers of lithium chemicals have struggled to allocate units to the spot market outside their long-term commitments due to rising demand from the battery industry during the year.

Lithium is a key ingredient in batteries that power electric vehicles (EVs), demand for which was expected to surge in the medium term. But it has also been traditionally used in a number of chemical and industrial applications, such as glass and ceramics’ production, lubricating grease and other uses, where it is an essential ingredient.

Market participants suggested that the battery space will be driving the direction of prices going forward and will take up a growing percentage of market share, sparking issues with the ability of non-battery users to secure long-term supply.

“Total global volume of technical-grade demand is around 30,000-40,000 tonnes per year: that’s a very small proportion of the future increase in demand,” an Asian lithium processor source said.

“The industrial segment is not a growing demand sector. Its consumption is expected to remain stable, but [industrial consumers] will have to pay a higher price driven by the battery market. The price of lithium is now being driven by battery demand,” this source said.

Lithium spot prices across various regions have seen double-digit growth over the course of 2021, with momentum in China filtering through other regional markets amid tight availability of lithium salts and increasing demand for lithium iron phosphate (LFP) batteries, which typically feed on lithium carbonate.

Fastmarkets’ last assessment of the lithium carbonate 99% Li2CO3 min, technical and industrial grade, spot price range exw domestic China was 185,000-190,000 yuan ($28,942-29,724) per tonne on Thursday November 11, unchanged since October 28 but more than four times the 40,000-45,000 yuan per tonne recorded at the start of this year.

A similar trend was seen in other regional spot assessments for lithium carbonate and hydroxide across the technical and battery grades.

Fastmarkets’ last assessed the lithium carbonate 99% Li2CO3 min, technical and industrial grades, spot price ddp Europe and United States at $25.25-27.00 per kg on November 11, up by 3.49% from $24.50-26.00 per kg on November 4 and more than triple the $6.50-7.50 per kg recorded at the start of this year.

In both Europe and Asia, battery-grade carbonate has typically maintained a premium over technical-grade product over the past few years. The price differential increased during the last bearish cycle to 2020, but it narrowed significantly in 2021 amid a rebound in the overall market.

As of mid-November, the spread shrank to almost parity.

“Longer term, technical-grade buyers will need to pay a premium to retain their supply,” a lithium producer said, noting that incoming and new projects are overwhelmingly geared to serve the battery industry and not the industrial sectors.

This will exacerbate the supply, and price, problem for the latter, he said.

“Technical-grade lithium buyers may, or will have to, be willing to pay a premium because they take lower volumes, and it’s a much smaller share of their purchasing costs,” the producer said.

Industrial lithium consumers active in the domestic China and seaborne Asia markets, where most of the battery demand is located for the time being, face a similar scenario.

A trader in Asia noted that in recent weeks consumers from the traditional chemical sector might encounter serious challenges in securing lithium units.

“Lubricating grease and ceramics are probably [going to be] suffering more,” the trader said. “Major producers will focus on the production of battery-grade units as opposed to technical-grade [material].”

This will lead to a progressive loss of focus for the requirements of the industrial sector, with batteries taking an ever more central position in the value chain.

“[Industrial players] will definitely have to pay a premium and fight for every tonne they want,” an upstream lithium distributor active in Europe and Asia said.

“[Lithium-ion] Battery producers have deeper pockets and larger-[volume] contracts, while industrial players are in the hundreds of tonnes, not thousands of tonnes. Their volumes are smaller compared with battery players, so their prices will have to be at least at parity - if not at a premium - [to battery participants],” the same source said.

Some sources suggested that in the near term, new projects coming online could lead to higher supply for industrial consumers while the product is being qualified for use in battery applications. In other words, a new project could sell to industrial customers in the first phase of production, before the material is qualified for battery applications.

Others, however, disagreed with this view, pointing to options to sell unqualified material to processors.

“Junior miners that will produce technical-grade lithium compounds that are still open for bidding could easily sell their chemicals to Chinese converters that can use them as a feedstock for battery-grade lithium salts rather than selling to industrial consumers. I do not necessarily see a link between more supply to industrial players with more junior miners coming online over 2022 and onward,” a lithium distributor said.

At the same time, established lithium producers insist they are aware of the needs and concerns of their industrial customer base and want to ensure future security of supply.

“Industrial customers are more nervous about future availability, but our position is to guarantee supply to all of our customers in the different segments and have a diversified portfolio of applications,” a spokesperson for a global lithium miner based in South America said.

“The battery industry is very attractive, but lithium is needed for unique uses and there are no substitutes. We will try to keep serving our traditional customers while [we] keep growing in the battery industry, although it will be challenging due to huge yearly growth rates expected in the battery segment,” the same source said.

The accelerated uptake of EVs as a result of a renewed focus on cutting carbon dioxide emissions means that growth in demand has been faster than many thought it would be, Fastmarkets’ head of battery materials research William Adams said.

“As a result, we do expect the supply chain will struggle to keep up at times with year after year of high growth,” he said. “We expect the exchange contracts to now offer ways to manage the price risk, although consumers will still need to secure supply.”

Price differentials between technical and battery grade lithium chart

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