Domestic lithium production is a priority as Europe looks to develop a regional lithium-ion battery supply chain. We use data collated through the production of Fastmarkets NewGen lithium long-term forecast to explore how Europe is progressing and if we can expect enough domestic supply to service demand.
Key takeaways:
- European lithium demand can not be met by domestic mine supply
- Plans for refining capacity look adequate, but securing feed will be challenging
- Additional vertical integration and industry consolidation could further reduce available feed
- Flexibility of feed input will be key
- Lithium supply is just one risk. Capacity announcement for key battery sub-components also look inadequate
Regionalizing supply chains
Lithium is an essential material in the transition to a low-carbon economy, the integral component of the lithium-ion battery. In geological terms, lithium isn’t a particularly rare mineral. It is widely distributed globally, concentrated in appreciable quantities within both hard rock and brine deposits, locked within various minerals such as spodumene and lepidolite. The challenge comes with locating occurrences that are concentrated enough to become economically extractable and then producing a battery-grade product suitable for use in rechargeable batteries.
Being a critical metal, there has been a drive to regionalize supply for several reasons. Not least to secure material for domestic consumption and reduce the reliance on a Chinese dominated value chain, but also to shorten supply chains, control traceability and improve the ESG footprint of production.
Whilst announcements of plans to develop battery-grade lithium production in Europe have been steady, how realistic are these plans and are they enough to meet forecast demand?
Mine supply looks inadequate to meet demand
Europe is not short on lithium occurrences with deposits found in almost every country from the UK to Ukraine. However, much of these occurrences are unconventional, not your typical spodumene and salar brine deposits. The unconventional and often low-grade nature of the deposits may render many fledgling projects uneconomic.
There are many barriers to successful development of a lithium mine in Europe, especially given the current economic landscape. The unconventional and low-grade nature of deposits, increasingly stringent and lengthy permitting processes being others. Without doubt the largest barrier comes from gaining a social licence to operate. We have taken the above challenges into consideration when forecasting supply from the region, but the risk is firmly to the downside and in no scenario is European mine supply likely to service regional demand levels.
Fastmarkets forecasts European mine supply to reach 135 kt LCE by 2030 but expects EV demand to reach 380 kt LCE in the same year, a shortfall of approximately 245 kt LCE.
Processed supply is a different story, but dependent on multiple variables
Although mine supply is insufficient, our analysis indicates a different story on the refined supply side, as it looks like we have enough announced capacity to meet electric vehicle (EV) demand. However, this is dependent on multiple variables, not least securing the necessary raw material feed.
Fastmarkets has identified approximately 400 kt lithium carbonate equivalent (LCE) of announced merchant refinery capacity in Europe, which we estimate could produce 261 kt LCE of battery-grade carbonate and hydroxide in 2030.
Add this to the 111 kt LCE of supply we expect from vertically integrated producers in the region and there could be 372 kt LCE of domestic refined supply in 2030, resulting in a roughly balanced market. The question then becomes, where will these non-integrated converters secure the necessary raw materials to feed their refineries?
There will be fierce competition for feed
Based on our analysis of offtake agreements announced in the public domain, equity investments and Fastmarkets’ existing market insights, we have produced estimates on available production, utilizing 2030 as a base year.
Africa is forecast to be one of the largest growth areas for lithium supply over the next decade, thanks to its unrivalled mineral endowment. Our calculations show that 80% of forecast production in 2030 is already tied up in vertical integration and offtake agreements, leaving 20% (~90 kt LCE) unaccounted for. Of this 80%, 93% is destined for the Chinese market, as Chinese owned companies have aggressively expanded in the region to diversify supply and reduce the reliance on feed from Australia.
It is a similar story for Australia, although a large and increasing proportion of mine supply is expected to be consumed domestically or tied up in vertical integration, as opposed to being exported to China. There is some material already destined for the US and South Korea, but only agreements in place with refineries in Europe, with no mention of what mine(s) the raw material will be sourced from. Of what is left available, there will be fierce competition to secure these units due to the attractive ESG credentials, high quality concentrates and Inflation Reduction Act (IRA) compliance.
Perhaps the most promising region for European refineries to target is Canada. There are significant opportunities to secure feed, with 66% (100 kt LCE) of 2030 production still available according to our calculations. Like Australia, the supply will be ESG friendly, high quality and IRA compliant, so again this feed will be highly sought after from North American refineries. Canada does have the potential to increase raw material supply significantly as like Africa is well endowed, but permitting timelines may be an issue.
What is left available, some 560 kt LCE (by our calculations), is theoretically enough to service the shortfall of Europe, US and China’s refinery needs. But our figures do not consider plans for further vertical integration in Australia and Canada, recently touted by Pilbara Minerals and Sayona Mining, as well as industry consolidation which could significantly reduce available feed. We think that further integration is likely considering the value add that can be achieved by moving downstream.
Our research suggests that, due to the pull of the IRA, third-party refineries in Europe will likely come off second best to US refineries, so the need to sign offtake agreements as soon as possible is imperative. A change in strategy to adopting a toll refiner model for a European cell manufacturer or OEM, who in theory have increased buying power, could also be viable, albeit a less attractive option.
In either case, flexibility of feed input will be key. Processing spodumene into a battery-grade carbonate and hydroxide is a tried and tested route, offering the lowest risk option. However, with the spodumene market expected to remain tight, especially supply sourced from IRA compliant countries, the ability to accept multiple feedstocks, including technical grade carbonate, intermediaries such as sulfate and phosphate, as well as recycled material will be important for the viability of refineries in Europe. The latter not least because of the closed loop nature, but also to ensure recycled content targets can be met.
The European market is falling further behind China and the US
Although lithium often gets the limelight, we shouldn’t ignore chemical, electrolyte, precursor cathode active material (pCAM), cathode active material (CAM) and battery component (separators) capacity in the EU which would all seem to be insufficient to meet demand based on current capacity announcements, leaving the region heavily reliant on imports from China for these other key components.
Analysis presented by the UK Advanced Propulsion Centre (APC), and backed up by Fastmarkets internal research, shows significant gaps in Europe’s capability to supply battery cells and sub-components, let alone the underlying raw materials. With the US IRA offering attractive incentives in the form of tax credits to build out the domestic supply chain of these components, it could come at the expense of EU production as companies move plans across the Atlantic to a more favourable investment environment.
Europe’s pursuit of a regional lithium-ion battery supply chain faces significant challenges, as domestic mine supply falls short of meeting demand. While plans for refining capacity appear promising, securing adequate feed and addressing the growing competition for raw materials remain crucial. Flexibility in feed input and strategic decision-making will be key to successfully establishing a self-sufficient lithium supply chain in the region amidst the growing dominance of China and the US in the global battery industry.
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