Lithium price volatility is a growing pain that will lessen, Vulcan Energy says | Hotter Commodities

The moves in lithium prices are also serving to determine which projects are more feasible than others, Francis Wedin said.

“Lithium is undergoing the growing pains of a small market that is growing at the rate of 25-30% compound annual growth rate (CAGR). When the lithium price was at $80,000 per tonne, it wasn’t sustainable – it’s not good for customers or for electric vehicle (EV) sales,” he told Fastmarkets in a recent interview.

“Every time supply and demand fluctuate, we’ll continue to see these wild price swings. It’s likely to last for the rest of the decade, at least. The swings will gradually lessen as the market matures,” he said.

Spodumene prices have fallen by around 90% since January 2023, a trend that is similarly reflected in the prices for battery-grade lithium hydroxide and lithium carbonate in Asia.

It has led several producers to embark on major cost-cutting reviews that have included deferring projects or curtailing capacity.

Fastmarkets most recently assessed the spodumene min 6% Li2O, spot price, cif China at $850-940 per tonne on Wednesday, February 28, up by 5.29% from the prior assessment and marking its first increase since May 2023.

“It’s healthy to be a little Darwinist about projects – you can’t always have the rising tide of everything, and not all projects are workable. It’s good to have a flush-out, which I think we’re going through currently,” Wedin said.

Vulcan Energy

Perth, Australia-headquartered Vulcan Energy is developing the world’s first dual lithium chemicals and renewable energy business with net zero greenhouse gas emissions. The project is located in Germany’s Upper Rhine Valley, and its first phase is targeting annual lithium hydroxide production of 24,000 tonnes – enough for around 500,000 EVs.

Vulcan Energy will extract geothermal brine from an underground reservoir, with the resultant heat generating steam to power the geothermal plant turbine and generate electricity, which is in turn sold to the grid.

The brine is then diverted to an adjacent direct lithium extraction plant, where the lithium is separated from the impurities into chloride form. This product is in turn transported to a central lithium plant for conversion into lithium hydroxide.

The brine is reinjected into the ground.

Wedin said that, because Vulcan Energy has a low-operating-cost project with stability on pricing and a claim to produce the most sustainable lithium product in the world, the company’s financing is progressing well, despite lithium market volatility.

“Vulcan Energy has set itself up with this volatility in mind. We moved very early to lock in offtakes at a sustainable price for everyone, focused on quality counterparties that are going to go the distance with us as well,” he said.

The company – which has lithium offtakes in place with Stellantis, Volkswagen, Renault, Umicore and LG – expects to close its debt and equity financing by the end of this year for Phase 1.

“The results of our current financing process will be the proof in the pudding for how strategic investors and banks see our business model. That will be a key market differentiator in the lithium market going forward, between lithium companies with high costs of production and low costs of production,” Wedin said.

The company previously told Fastmarkets that automotive companies are putting potential suppliers of critical minerals through a vetting process to ensure their environmental, social and governance (ESG) approaches are aligned before considering offtake deals.

The company has also focused on building an extremely low operating expenditure project, using largely waste energy from the renewable energy production process, he noted.

“Brines and Adsorption-type Direct Lithium Extraction (A-DLE) will come into its own in the coming years as more projects get built, because they can act as swing producers and be the control for the cost of production,” Wedin told Fastmarkets.

Vulcan Energy’s project will have the ability to do just that: add production and scale in a step-wise, phased manner as the market grows, Wedin said.

“There needs to be a level playing field though – the level of state support that Chinese raw materials companies have access to can distort the market.

“More Western intervention is needed, whether in the form of trade barriers or grants. We’re seeing encouraging signs of that starting to emerge,” he added.

DLE technology

DLE technology – an umbrella term encompassing several technologies with varying degrees of development – is undergoing a shake-out, with companies starting to consolidate around one type instead of multiple, Wedin said.

Supporters of the DLE extraction method claim that it increases the lithia recovery rate from brines, reduces the use rate of fresh water and has a lower carbon footprint than traditional extraction methods while cutting the overall amount of time needed for the lithium extraction process.

Vulcan Energy uses A-DLE technology.

“[The shake-out will] take place over the next several months, and all companies will move to one technology type – A-DLE – which is the only one proven to work commercially,” Wedin said. “It makes up 10% of global lithium production now, and there’s a reason for that.”

While other technologies are interesting, they have their flaws, according to Wedin. Ion exchange uses substantial amounts of reagents to work; solvent extraction has environmental issues; and membrane technology is too early stage, he said.

As a result, companies are starting to deselect former technology and move to commercially-proven A-DLE technology, which aids in their ability to secure financing, Wedin told Fastmarkets.

“I don’t believe there’s a different technology for each resource – in my view, it’s one DLE technology that you can tweak for each resource. There’s a question on where you get it from,” he said.

“We’re in quite a good position, as Vulcan Energy is one of the only Western companies with this type of technology in-house; we’re getting a lot of interest as a technology firm for that reason. We can license it and be an asset-light technology company as well,” he added.

Green premiums

Sustainably produced lithium will eventually attract a green premium, although the market is not quite there yet, Wedin said.

“Similar to the growth in green premiums for steel and aluminium, green premiums will come, in terms of a spot price, pricing index or low-carbon lithium. But it will take time,” he told Fastmarkets.

“The wars around the world aren’t helping. People want product at any cost, so there is a bit of short-term pragmatism around how and where people source,” he noted.

The structural shift toward deglobalization and regionalization of supply chains is also relevant for Vulcan Energy due to Europe’s vast need for critical raw materials such as lithium, and its chronic undersupply, Wedin said.

“Each bloc has its own controls based on sustainability, such as the Carbon Border Adjustment Mechanism [CBAM]. That means Vulcan Energy’s product will likely be the favored product, because it is produced sustainably and locally,” he said.

“High-carbon products produced elsewhere are going to face a carbon tax at the border. CBAM will eventually include chemicals, so that’s important for the development of green premiums,” he added.

Intending to accelerate decarbonization, CBAM is a carbon tariff on carbon-intensive products, such as steel and cement, imported by the European Union.

Barriers

The main issue in Europe is getting product cheaply and locally due to the EU Battery Regulation, which impacts the design, production and waste management of all types of batteries manufactured or sold in the bloc, Wedin said.

Western original equipment manufacturers (OEMs) still want to be vertically integrated and get closer to the supply of key raw materials, according to Wedin. But in the last year or two, the threat of inexpensive EV competition from China has started to hit home.

“The EU will miss its own targets for electrification, and most likely, automotive manufacturers will as well unless there is more state incentivization for critical minerals supply chains,” he said.

But ultimately, he noted, automakers will not be allowed to fail – one in five Germans works in the country’s auto sector, for instance.

“[The auto sector] won’t go the same way as the European solar industry, which is much smaller,” Wedin said.

But barriers, including battery regulation, will be needed against China, which has a far higher level of state aid compared with the EU, he told Fastmarkets.

“OEMs won’t be able to get enough batteries or raw materials to make EVs because of China’s dominance of supply chains – so the EU will have to pull out all the stops to build its own supply chains faster,” Wedin said.

“They’ll get there eventually, but I think, in the short term, the EU will miss a lot of its electrification targets due to shortfalls throughout the entire supply chain,” he added.

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.