Lithium riding high on battery boom

London, 29 Feb 2016

While the price of oil, coal and metals like iron ore and copper remain depressed, there is one commodity that is bucking the trend: lithium.

In the last two months of 2015, Asian prices for lithium carbonate nearly doubled to a historic high of $US10,000 per tonne.

Rio Tinto confirmed lithium's status as one of the most sought after commodities when in December 2015, the mining company revealed it was intending to develop lithium and borates from its deposits of the obscure mineral Jadarite in Serbia. Rio Tinto has not invested in the resource since 2011.

The rising demand is stemming from a global boom in electric vehicles that are powered by lithium-ion batteries. Rio Tinto is looking to underpin its Serbian project with supply contracts from car manufacturers to position itself as demand increases.

"What we are seeing is a tipping point in electrical vehicle consumption," says Raj Khatri, Senior Managing Director in Macquarie Capital's Resources Group.

"In 2014 one million electric vehicles were sold," he says.

"Out of a total global market of 80 million car sales, that is obviously still a very small portion of the market, but it is up 100,000 from the previous year and sales are likely to grow massively as prices come down."

The cost of electric vehicles – driven by the cost of the battery – remains the largest hurdle that manufacturers need to address for mass-market adoption.

However, due to ongoing development of the technology by manufacturers, battery costs are likely to fall from $US300-400 per kWh to $US200 per kWh in 2016.

At this level, the total cost of ownership of an electric vehicle will fall from 10 per cent to less than two per cent above the cost of a traditional internal combustion engine vehicle.

Electric vehicle pioneer Tesla claims that the cost of its battery cells is already just $US185 per kWh.

When its new Gigafactory facility, developed with Panasonic, begins production in 2016, Tesla predicts it could achieve economies of scale that would bring the price down to just $US130 per kWh by 2017

The biggest challenge for Tesla and Panasonic is likely to be getting access to enough lithium to supply the planned ramp-up in battery production at their Gigafactory.

The cost of electric vehicles – driven by the cost of the battery – remains the largest hurdle that manufacturers need to address for mass-market adoption.

The lithium required for batteries is not technically a commodity, but rather a speciality chemical.

Lithium, the lightest of all metals, does not occur as a pure element in nature but is contained within mineral deposits or salts, including brine lakes and seawater, and must be extracted through methods such as evaporation.

To be used in lithium-ion batteries, the lithium concentrate that is extracted must then be chemically processed to become either lithium carbonate or lithium hydroxide.

There are very few places in the world where lithium can be extracted in sufficient quantities to make production of lithium concentrate economically viable; currently the main producing regions are the brine pools of the Andes in Latin America, and mineral deposits in Canada and Australia.

Other potential sources are being developed and explored, including Rio Tinto's Jadarite basin in Serbia and clay deposits in Mexico and the US state of Nevada.

Despite increased exploration, only one new facility has come online in the last 10 years; Australian-owned Orocobre's Olaroz facility in Argentina, which began brine extraction and lithium carbonate production last year.

The only expansion of existing production during that time has come from Talison Lithium's mineral project in Western Australia, which almost exclusively supplies all of its lithium ore as a feedstock for Chinese chemical manufacturers.

"There will be a shortage of lithium in the short to medium term," says Khatri.

Indeed, some estimates put the shortage at 20,000 tonnes in 2016 alone, with global production expected to be in the range of 150,000 to 170,000 tonnes this year.

The shortage could also become more severe if a breakthrough is made in the other potentially huge market for lithium batteries: renewable electricity storage.

With increasing use of renewable energy around the globe, there is a huge demand for a technology that can efficiently store the electricity generated by wind turbines and solar panels in order to release it when it is needed.

Developments on this front are taking place both at the utility scale and for domestic use.

On the commercial and utility side, Southern California Edison in 2014 began construction of a 400MW lithium-ion storage facility, while Tesla is developing a 100kWh battery called the Powerpack.

This battery is, according to Tesla "scalable to infinity", potentially creating huge industrial batteries. The company already has a commitment for a 250MW installation and is working with Amazon on rolling out the product.

At the same time Tesla has already released its 10kWh Powerwall battery for domestic use – allowing households to store the energy collected by their solar rooftop panels.

With lithium mines taking up to 10 years to develop from exploration to production, and demand surging from multiple technology sectors, Khatri believes the lithium supply bottleneck is unlikely to be resolved any time soon.