Roskill: The positive market outlook for lithium results in new challenges

The political commitments globally towards decarbonisation has seen changes in the incentives for electric vehicles, resulting in an rapid increase in electric vehicles sales and demand for batteries used in their manufacture. The increase in demand is translating back through the supply chain into significant growth in demand for battery raw materials. The lithium market is facing very high growth rates in demand for lithium chemicals while bringing on new capacity, both at the resource level and the lithium chemical level, is more challenging. The forecast growth rates are likely to result in a shortage of lithium chemicals, which will result in new challenges for the lithium industry.

London; UK, Sept. 01, 2021 (GLOBE NEWSWIRE) --

In 2020, the lithium market started with a high level of uncertainty after 2019 saw supply increasing faster than demand, resulting in a build-up of inventory and falling prices. This trend continued into 2020 with market uncertainty exacerbated by the onslaught of the COVID-19 pandemic. The European Commission and member states acted swiftly with stimulus packages to ensure the important automotive industry was supported. The support was done in line with the overall strategy to move towards carbon neutrality and the electric vehicle industry benefitted greatly from this. As a result, demand in both China and Europe was stronger than initially expected. On the other side of the supply and demand picture, the low prices and large inventories build-up in 2019 resulted in lowered production of spodumene concentrate in Australia and lower production of lithium chemicals in China. With increasing demand and curtailed supply, the excess inventory in the supply chain was largely depleted by Q4 2020, causing prices to recover. Price increases of both lithium chemicals and spodumene concentrate continued into the first half of 2021.

The market balance for spodumene concentrate is heavily reliant on new projects to commercialise in order to maintain a small production surplus during most of the 2020s, although by 2028 Roskill forecast a shortfall in supply compared to the demand from lithium chemical converters. For the total refined lithium chemical outlook, Roskill forecast a small supply surplus up until 2028 when demand growth will outstrip available supply. When looking at the market balance for battery-grade lithium chemicals, however, the market is forecast to enter a supply deficit in the coming years because of strong demand growth and limited supply availability associated with the unfavourable economic environment in 2019-2020. While the calculated supply deficit is real, Roskill does not consider the level of the deficit to be likely. During the forecast period, additional supply is likely to be commissioned as exploration efforts increase, which will be complimented by changes in both upstream and downstream production technologies. Supply-side responses to higher prices and material shortages are also likely to be complimented by a demand response, reducing lithium requirements if material availability becomes restrictive to growth.

CONTACT: Allan Pedersen Roskill Information Services Ltd +61 8 6230 4036 Allan@roskill.com