Lithium supply a significant risk for Western automakers and OEMs

You can look at lithium in one of two ways: the state of play in 2020 — or the potential state of play in 2030.

While present producers have been battling uninspiring levels of demand and the impact of the COVID-19 pandemic, the outlook 10 years hence is seemingly much brighter, especially with the projected growth in electric vehicle (EV) use.

On top of all this, there are — to use what is fast becoming a well-worn phrase — the known unknowns: on the one side potential non-mining sources of lithium or, worse, substitutes; on the plus side, though, totally new applications such as electric-powered jet airliners.

First, there’s the present situation.

It was reported this week that a new lithium refinery to be built in Western Australia will employ 300 staff — not the 500 initially planned. The reason for the drop: the recent easing in lithium demand.

US mining company Albemarle, which owns 49% of the Greenbushes lithium mine in Western Australia, has already delayed start of construction until next year.

The refinery will produce 50,000 tonnes per year of lithium hydroxide.

Pandemic hit lithium demand at a bad time

British industry analyst firm Roskill says current soft market conditions for lithium chemicals are undermining the profitability of several major spodumene producers, with under-utilisation of capacity having an impact on their cost base.

During the first quarter of 2020, more than 50% of supply was marginal to loss-making.

COVID-19 has been another issue. In its half-year report to June 30, lithium producer Galaxy Resources (ASX: GXY) noted that “the full impact of COVID-19 on its operations, projects and sales remains uncertain and fluid with the group monitoring the situation closely”.

It added: “With increasing pressure on lithium prices, producers and developers are slowing or stopping new mines and expansion projects”.

The company has already scaled back its operational plans for this year until the market outlook becomes clearer.

“Inventory stockpiles of lithium raw materials and chemicals continue to exceed normal levels,” it added.

Another West Australian spodumene producer, Pilbara Minerals (ASX: PLS), was also showing the bruises from recent market events.

Reporting its 2020 financial result, the net loss of $99.3 million was put down to “soft market conditions in China, weak customer demand for lithium raw materials and low spodumene concentrate prices”.

But Galaxy’s report also looks ahead to a brighter time.

Electric vehicles forecast to boost lithium demand through to 2030

The European Union’s subsidies for EVs, plus German and French incentives, are pushing battery powered automobile sales.

China is targeting a 25% penetration rate of new energy vehicles by 2025.

Chile’s state-owned copper commission, CoChilco, expects lithium demand to recover over the next few years, forecasting that demand in 2030 will be about 450% higher than it is today.

And much of that will be down to EVs.

Cochilco says EVs now account for 24% of lithium use; by 2030, EVs will be using 79% of all lithium output, with the remainder of future demand growth being propelled by electronics, energy storage and various gadgets including e-bikes.

There are reports that some of the reason for the present high inventories is that consumers are buying smaller amounts each time as they try to keep stocks on hand low.

Also on the positive side is this thought: by 2030, apart from EV sales roaring, there will no doubt be new applications for lithium.

One such application is electric passenger aircraft.

The 2019 Paris Air Show saw the launch of the world’s first commercial all-electric passenger aircraft.

An Israeli company revealed a prototype that can carry nine passengers for up to 1,040km at 440km per hour. It is expected to enter service in 2022.

Getting a Boeing 777 or Airbus A380 off the runway, let along over thousands of kilometres of ocean with hundreds of people, their luggage and the all-important revenue earning freight is quite another matter.

Existing batteries are too heavy to be the sole source of energy on a long, or even short, distance air route using a wide-bodied jet liner. Such a plane would need to carry thousands of kilograms of batteries (and consequently far fewer passengers and a lot less freight).

But work is under way on a new, lightweight lithium sulphur battery with increased energy density that its developers claim will allow electric-powered commercial flight.

Securing non-China product is vital for Western supply chains

Piedmont Lithium (ASX: PLL) has both identified the need to find supply security outside China — and has proceeded to do that and is to become one of the only spodumene miners and lithium hydroxide producers not dependent on China for any part of its operations.

Almost all of the global spodumene is converted in Chinese plants.

In the June quarter, the company completed an updated scoping study for its integrated mine-to-hydroxide project in the US state of North Carolina.

Piedmont, which is dual-listed on the Nasdaq exchange, is planning to produce 22,700 tonnes per annum of battery-quality lithium hydroxide in North Carolina, targeting electric vehicle and battery supply chains in the US and globally.

Lithium hydroxide is required in the nickel batteries used in longer-range vehicles, and shortages are expected from 2023.

At present, most of the world’s lithium hydroxide is produced in China.

Piedmont is targeting automakers and original equipment manufacturers that are seeking localised supply chains.

Substitutes are always a background threat to technology metals

When rare earth prices went soaring in 2011, the immediate response of end-users (certainly in Japan) was to unleash a “recycle, reduce and replace” policy, trying to find ways to recover rare earth metals in devices, reduce quantities used and looking for substitutes.

The threat of substitute materials is always there if prices go too high and reduce end-user margins

But, of course, there has to be a substitute in the first place.

Ever since the lithium battery story took off, there have been announcements that X company or laboratory was on the brink of finding a satisfactory lithium substitute.

One of the latest ones come from Germany.

Researchers at Germany’s Karlsruhe Institute of Technology have developed what they claim is an environmentally friendly process to extract lithium from salty geothermal water reservoirs.

The scientists’ plan is to filter out lithium ions from the thermal water and then further concentrating them until lithium can be precipitated as a salt.

The Germans say this is much more environmentally acceptable than either evaporating brine lakes in South America’s Lithium Triangle or extracting spodumene from hard rock.

Replacing lithium long way off — if ever

Researchers elsewhere are working to develop a sodium-ion rechargeable battery to replace the lithium-ion one.

South Korea has produced a battery that has a long recharging life, and the Americans and Chinese are working on the sodium technology to ensure a battery that would tolerate many more charge cycles.

However, it is noted in the reports that work on this new concept is running well behind what has been achieved with lithium-ion batteries — meaning this is a possibility well over the horizon.

And there is a big downside: sodium is three times heavier than lithium and is less powerful in battery applications.

These are not issues that are going to be overcome tomorrow.

And they may never be.