Lithium demand and price

The following is a transcript of a presentation delivered by Adam Webb, S&P Global Market Intelligence, Head of Mine Economics at our hosted event, Mining Perspectives, Beijing, in March 2019.

I will start by going through what is driving lithium demand, how the price has been doing over the recent past, and move on to talk about where lithium comes from.

So to start, what is driving lithium demand?

The chart on the left shows lithium demand in 2007 and 2017, and we can see that the biggest change in lithium demand is for battery manufacturing. This sector saw demand increase from 21,000 tonnes of lithium carbonate equivalent in 2007 to 125,000 tonnes in 2017, an increase of almost 500%. The demand from batteries alone is now greater than the total lithium demand in 2007.

What has been driving this increase in demand for lithium in batteries? Electric vehicle growth.

The chart on the right shows new EV sales between 2007 and 2017. In 2007, there were less than 1,000 new EV sales globally. In 2017, this number was over 1 million, and these numbers have been continuing to increase further. The growth in EV sales is a global trend, but significant growth has been seen here in China with new EV sales in 2017 surpassing those in the rest of the world.

All these EVs use lithium-ion batteries. Technologies vary and need different materials, but all require lithium, and this is what is driving the surge in lithium demand.

This slide shows the spot lithium carbonate price, CIF Asia, alongside realized prices for lithium carbonate from Sociedad Quimica y Minera de Chile SA's, or SQM, and Albemarle Corp.'s operations on the Salar de Atacama, which are the two biggest lithium carbonate producers in the world.

The first thing to note with lithium prices is that most lithium products are traded using long-term contracts. You can see that in the chart, there is a differential between the prices achieved for lithium carbonate from the operations on the Salar de Atacama compared to the spot lithium carbonate CIF Asia price. The spot price does give some indication of price movements on a shorter-term basis. The spot price peaked at US$21,500/t in October 2017 and has since dropped back toward US$13,000/t; however, the average contract price from both operations on the Salar de Atacama in 2018 was up 25% year over year compared to a 4% drop in the yearly average spot price.

The second thing to note here is the difference between price achieved by SQM and Albemarle. Both operations produce lithium carbonate from the Salar de Atacama and are right next to each other geographically, so you may expect prices achieved for their products to be very similar. However, despite the similarities, the lithium carbonate produced by each operation will have different chemical properties, which will attract a premium or discount, is being shipped to different locations, with the price also dependent on the contract negotiation strategies of each company.

Pricing in the lithium market should be viewed on a product-by-product basis, with spot prices giving valuable insight on trends but not viewed as an absolute price.

The next question to answer is: Where is lithium coming from?

This slide shows total resources and 2018 production as a share of global for each country and by deposit type. Lithium is currently produced from two types of deposits. Brines, where saline brines with high lithium concentration are pumped to the surface, concentrated in evaporation ponds and then further processed to lithium products. Hard rock pegmatites, where rock with high lithium grades is mined, crushed and concentrated with concentrate then sent to downstream processing facilities to produce lithium products. The main other source of lithium is in clay deposits; however, there are currently none of these producing lithium commercially.

Currently, 68% of lithium resources are found in brine deposits, with the biggest resource for a single country being Bolivia, although Bolivia does not currently produce lithium commercially, and we will touch on why this is later. Despite brines containing the majority of global lithium resources, production from hard rock pegmatite deposits dominates global supply, particularly from Australia, which accounted for 58% of global lithium supply in 2018.

The diagram on the left is a simplified flow sheet of what is produced from different deposits. Generally speaking, brines will produce lithium carbonate or lithium chloride. Lithium carbonate can then be converted to lithium hydroxide. Pegmatite operations will produce a concentrate, usually spodumene, which is then further processed to produce lithium hydroxide or lithium carbonate. For battery manufacturing, lithium carbonate and hydroxide are the most important products and form the majority of the lithium market.

Last year, there was some talk about the lithium hydroxide premium compared to lithium carbonate and that this was getting bigger. This was driven by the idea that battery technology was shifting toward higher nickel content cathodes and that these require lithium hydroxide to manufacture. However, we can see from the chart on the right that although there were some monthly spikes in the premium, the average in 2018 was very similar to that from 2011 to 2014 at about US$2,500/t. This story was likely overhyped, with the switch to higher nickel content batteries being a longer-term shift and the increase in spodumene concentrate production providing greater feedstock for lithium hydroxide production both keeping the premium from increasing significantly.

The full presentation which outlines lithium demand and price, exploration trends and outlook on supply and costs, is available to S&P Global Market Intelligence Metals & Mining subscribers.

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How lithium production costs shape pricing.

S&P Global Market Intelligence's recent addition of global lithium cost curves to our Mine Economics data set, offers strategic insights into the production costs of individual lithium mines and companies. Our interactive charting tool enables you to group, filter, label and highlight multiple lithium cost curves by property, equity owner or geography.

To learn more how production costs can shape lithium pricing, request a demo by completing the form below.

Source: S&P Global Market Intelligence  Data as of March 11, 2019.

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