Lithium sector springs back into life as future supply crunch nears

It has been beaten up and beaten down for months, but it has taken just one share price movement in the lithium space to suddenly get the market’s attention once again.

The indications that the worst may be over for the lithium stocks come just after a warning earlier this month from an authoritative Finnish-German study that, while lithium supply is fine now, that supply chain could over coming years crack under the growth of demand.

This research report suggests that any new greenfield lithium project could take more than a decade and the industry is now in a state of “inertia” due to recent price ructions discouraging new entrants.

The spark that lit the lithium fire this week was the announcement by Piedmont Lithium (ASX: PLL) that it would be selling one-third of the spodumene concentrate it plans to produce in North Carolina to electric vehicle maker Tesla.

That sent the company’s shares on the ASX up 83% on Monday.

Lithium supply issue to become complex

However, the lithium space is going to become a great deal more complex over the coming years if the Finnish and German researchers are correct.

In their report Assessment of lithium criticality in the global energy transition and addressing policy gaps in transportation, the scientists from the University of Augsburg in German and Lappeenranta-Lahti University of Technology in Finland are quite clear about the fundamental importance of lithium.

“Lithium is critical to achieve a sustainable energy transition,” the report concluded.

Lithium battery demand is expected to be the main cause of a supply deficit.

In 2016, there were about one billion light duty vehicles on the world’s roads — but by 2050 that figure is expected to be about 3.05 billion.

Then there is the trend to electric vehicles (EVs).

The German and Finnish research team estimates by 2025 14% of all light vehicles in the world will be EVs.

By 2030, that it predicted to have grown to somewhere between 40% and 50%.

Yet by 2050, every light vehicle on the world’s road is expected to be powered by batteries.

That, the study concludes, is going to place huge strain on lithium supply.

Meanwhile, lithium-ion batteries achieved a compound annual growth rate of 24% between 2015 and 2018.

Critically, automotive applications for those batteries in 2015 made up 43% of demand; yet by 2018 hybrid and electric cars were accounting for 70% of all lithium-ion batteries coming on the market.

Will there be enough mines?

The German and Finnish researchers outlined just how long it takes to get new lithium mines into business.

“In the build-up phase, so-called greenfield projects must go through resource discovery, several stages of feasibility studies, facility construction and production start-up. This usually takes one to two decades,” the report noted.

And brine projects have their own issues.

“Relying on solar irradiation, the evaporation process is not constant throughout the year,” the report explained.

Another problem highlighted in the report is that no one knows how much lithium is left on earth.

The US Geological Survey estimates about 80 million tonnes but the authors of the report dismiss that as unrealistically high; other scenarios assume remaining stock is 41Mt, 56Mt or 73Mt.

First cracks appearing in China’s near monopoly

The previously mentioned Piedmont Lithium announcement also underlined another trend: there is starting to be a loosening of China’s grip on the production of lithium chemicals (lithium carbonate and lithium hydroxide) as processing grows in other countries.

In Piedmont Lithium’s case, it is not only planning to mine spodumene in North Carolina but to process it there right through to battery-grade lithium hydroxide.

As lithium-ion battery analysts at Benchmark Minerals point out, lithium chemical refining capacity will by 2023 have expanded significantly with Tesla building a plant in Texas, Toyotsu developing capacity in Japan, POSCO with a plant in South Korea and a plant will be opened in Germany.

Already Australian players have laid the foundations for greater diversity of supply.

But there have been setbacks.

In 2018, six of the seven spodumene producers were located in Australia, and they suffered setbacks when lithium prices retreated.

But since then, we have seen new players come through and with advanced projects.

Australian players rush to fill gap

Galan Lithium (ASX: GLN) is developing brine projects in the “lithium triangle” that takes in northern Argentina, Chile and Bolivia.

Earlier this year the company reported conceptual modelling at its Argentine project that ranked it among the best of the new lithium brine projects in the world.

Lithium Australia (ASX: LIT) has developed battery materials processing technologies that are designed to recover lithium from primary ore and waste materials — recycling being singled out in the German-Finnish study as critical for future lithium supply.

Its subsidiary Envirostream Australia (EVS) recycles energy metals from spent lithium-ion batteries.

Based in Victoria, EVS operates the only facility in Australia to shred spent batteries and from them produce a mixed-metal dust (MMD) containing critical battery materials including cobalt, nickel, lithium and manganese.

And upcoming ASX listing Pan Asia Metals (which will trade under the PAM ticker) has lithium projects in Thailand — a country that has an assertive EV policy and is the largest auto manufacturer in South East Asia.

Future lithium demand in the US has drawn a few other juniors to try their luck in North America.

Ioneer (ASX: INR) has a lithium-boron project in Nevada, Jindalee Resources (ASX: JRL) has two lithium projects (Nevada and Oregon) while Sayona Mining (ASX: SYA) aims to build a “lithium hub” in Quebec.