LITHIUM CONF: Lithium demand could outpace supply due to low prices, few projects

Still, major companies in Chile and Australia seem to be best positioned to increase capacity. As a result, new supply could come from low-cost producers rather than marginal cost producers.

“The market seems to be in capital starvation. The question is if it is so deep that supply won’t be as great as expected going forward,” McKinsey & Co leader for electric vehicles Ken Hoffman said.

“New projects, at least conceptually, would be coming from producers at the lower end of the cost curve, particularly from Chile,” Morgan Stanley managing director Javier Martínez de Olcoz Cerdan said. “They have [virtually] unlimited resources [and capacity increases would come at] low cost, low capex.”

Chile, for example, aims to maintain its current share of global output, at around 32%. The country’s ministry of mining estimates current projects around the world are enough to bring global production to 1.5 million tonnes per year from 2027 onward.

“We will need new supply after 2027 if demand expectations do not materialize,” Chilean vice minister of mining Pablo Terrazas said. “Chile is the main lithium producer in South America; we need to take the lead and sustainably increase output.”

This could mean that original equipment manufacturers (OEMs) will want to get more involved, granting capital needed for this supply increase, Fastmarkets’ head of battery raw materials research William Adams said.

“The environment is looking so constructive demand-wise for many decades and low prices and depreciated equity markets could mean there is not enough money coming to the industry at a time when it is needed,” he said.

The Chilean ministry of mining currently has three different scenarios for world lithium demand and in most of them supply would be tight.

A base-case of “medium demand” would mean consumption hits 1 million tonnes by 2027-28, Terrazas said. In the bullish one, demand would total 1 million tonnes by 2024 and surpass 3 million tonnes in 2038. The bearish scenario contemplates 1 million tonnes in 2034-35, reaching around 1.1 million tonnes by 2038.

Fastmarkets’ latest price assessment for battery-grade lithium carbonate (minimum 99.5%) in China, Japan and main South Korean ports was $11-12.50 per kg cif on June 6, the lowest level since at least August 2017. Prices were at $13-15 per kg on December 27.