Lithium Market

Since 2009 the consumption of lithium has experienced year-on-year growth with the overall market more than doubling in just twelve year from 2000. Market demand for lithium products is largely driver by the increase in use of rechargeable batteries in portable electronic devices and electric transportation. Lithium-ion batteries provide power for cell phones, smartphones, tablets, laptop computers, power tools, and many other mobile consumer devices. Larger format lithium-ion batteries provide power for electric cars, scooter, electric bikes, buses, forklifts and other forms of transportation. New applications for lithium are emerging in the areas of grid energy storage, solar and nuclear energy generation, and other industrial uses. Extensive new lithium-ion battery manufacturing plant capital expenditures currently underway are viewed as a positive indicator of future lithium demand.

Introduction

Lithium (chemical symbol: Li) is the lightest of all metals. It does not occur as a pure element in nature but is contained within stable minerals in a range of hard rock types or in solution in brine bodies within salt lakes (“salars”), in sea water or geothermal brines. The contained concentration of lithium is generally low and there are only a limited number of known resources where lithium can be economically extracted. A variety of factors drive the economics of lithium production. In the low cost brine sector in which the Company seeks to operate, the key drivers are:

  • the amount, or grade, of lithium and other valuable co-producers such as potassium and boron found in the brine (expressed in milligrams per litre, or mg/l ),
  • the ratio of contaminants that must be removed relative to the grade of the desirable products (the magnesium/lithium ratio being the most important),
  • the evaporation rate to concentrate and purify the brines in solar ponds, and
  • the availability and quality of infrastructure in proximity to the resource.

Lithium can be processed to form a variety of different chemicals depending on its end use. According to Roskill Information Services Ltd. (“Roskill”), the author of “Lithium: Market Outlook to 2017”, Twelfth Edition, 2013, lithium carbonate represents approximately 48% of the total global consumption of lithium chemicals (25% technical-grade lithium carbonate and 23% battery-grade lithium carbonate).
The next most common chemical is lithium hydroxide which represents 16% of total global consumption. Other forms of lithium consumed include lithium bromide, lithium chloride and lithium minerals.

Lithium and its chemical compounds exhibit a broad range of beneficial properties, including:

  • the highest electrochemical potential of all metals,
  • an extremely high co-efficient of thermal expansion,
  • fluxing and catalytic characteristics, and
  • acting as a viscosity modifier in melts.

As a result of these properties, lithium is used in numerous applications including ceramics and glass, batteries, greases, aluminium, air treatment and others.

Lithium Demand

Roskill estimates that total global demand of lithium in 2012 reached 150,200t LCE, with a value estimated at around 2.2Bn. Overall lithium demand increased at an average compound annual growth rate (“CAGR”) of 6.8% from the beginning of the millennium.

Future demand is projected by Roskill to grow at an annual base rate of 9.7% until 2017 with optimistic forecast at 15.7%py consumption growth.  Consumption of lithium in volume terms with be largely driven by the rechargeable battery market which is predicted to grow 21.5%py.

Lithium-ion batteries have become the most important storage technology in the areas of portable and mobile applications (e.g. laptops, cell phones, smartphones, tablets, power tools, medical devices electric bicycles, electric cars) since around 2000. Lithium’s high electrochemical potential - it has the highest electric output per unit weight of any battery material - makes it the standard material for lithium-ion (high energy-density rechargeable) batteries. High cell voltage levels mean that the number of cells in series with the associated connections and electronics can be reduced to obtain the target voltage. For example, one lithium ion cell can replace three NiCd or NiMH cells. Lithium ion batteries generally have a very high efficiency, typically in the range of 95% - 98%. Nearly any discharge time from seconds to weeks can be realized, which makes them a very flexible and universal storage technology.

In the automotive sector, the advent of lithium-ion hybrids (“HEV”), plug-in hybrids (“PHEV”) and fully-electric vehicles (“EV”) require large format batteries. These batteries will require kilos of lithium, rather than the grams used today in portable electronic applications.
Electric vehicles can be grouped into three main categories:

  • Hybrid Electric Vehicles (HEV): whose power-train is a combination of electric power and a gasoline engine. Hybrid electric vehicles come in two variants: (i) the mild hybrid electric vehicle uses a battery pack to supplement the gasoline engine either during acceleration, when the vehicle is at rest or low speed driving, and (ii) the full hybrid electric vehicle allows the car to be propelled in full electric mode and the batteries are recharged by regenerative braking. Hybrid electric vehicles consume approximately [0.5-2.0] kg Li per vehicle.
  • Plug-in Hybrid Electric Vehicles (PHEV): which allow batteries to be recharged by plugging the vehicle into the electric main system. Plug-in hybrid electric vehicles consume approximately [1.8-4.2] kg Li per vehicle.
  • Electric Vehicles (EV): fully electric vehicles whose main propulsion mode is electric, but which may also have a small gasoline engine to either assist in recharging the batteries or provide power to the engine if the battery charge is depleted. Electric vehicles consume approximately [10-20] kg Li per vehicle.

While portable consumer goods alone continue to provide impressive growth in demand for lithium batteries, the start of mass production of hybrid, plug-in hybrid and electric vehicles presents the most significant upside “step growth” potential for lithium demand.

A Citi Research (Citigroup) forecast in July 2012 projected the lithium-ion battery market to rise from US$13.9bn in 2011 to US$16.1bn in 2012, US$18.6bn in 2013, US$23.6bn in 2015, and US$34.3bn in 2020. Citi analysts also noted that an “upside” 2020 forecast of US$45bn based on an improved Chinese domestic market for vehicle and storage batteries. While most lithium-ion batteries are currently used in consumer electronic devices, Citi anticipates expansion over the longer-term for automotive applications (for HEVs, PHEVs, EVs), storage applications, and industrial use applications. Citi estimates that the market for lithium-ion battery cells used in consumer electronics at US$8.5bn in 2011, US$9.6bn in 2012, US$10.9bn in 2013, US$13.2bn in 2015, and US$14.7bn in 2020. In the automobile sector, Citi expects demand from HEVs to drive overall demand over the medium term, as full-scale market penetration of PHEVs and EVs will be difficult until the issues surrounding driving range, price and charging infrastructure are resolved. Despite these perceived market challenges, Citi’s automotive lithium ion battery market projection indicates a rise from US$1.2bn in 2011, to US$2.0bn in 2012, US$2.8bn in 2013, US$4.4bn in 2015, and US$10.2bn in 2020.

Major Factors Affecting Projected Demand

Given the increasing political and consumer focus on environmental consciousness, auto manufacturers are striving to lower both carbon emissions and fuel consumption in transport applications. In 2013 alone the number of electric vehicle models grew from 11 to 17 with a wide range of consumer choices offered by all the major global automotive brands. Electric vehicle options range from the zippy-city-drive Nissan Leaf to the long-range sporty performance of the Tesla Model-S.

Determining the future growth in electric vehicles is difficult to predict and there are a wide range of forecasts as to the number of electric vehicles that will be on the road within the next decade and the resultant additional potential lithium consumption requirement. However, there has been a large number of government incentive programs, globally, recently announced to advance the development, production and use of HEVs, PHEVs, and EVs. Despite near-term uncertainty as to the growth of lithium-ion batteries in the electric vehicle segment, the Company believes the increasing drive for lower carbon emissions by governments and consumers, significant investments by a number of governments globally in new battery technology for transport applications, and technology improvements within car manufacturers themselves, will provide significant future demand growth for lithium. Government intervention alone, in the form of both electric vehicle adoption incentives and fuel economy and emission regulations for gas powered vehicles, provides a favourable framework for potentially huge growth in future lithium demand.

Lithium Supply

Commercial lithium production currently comes from two sources:

  • Brines: lithium rich brines from salt lakes, or salars; and
  • Minerals: pegmatite rock deposits containing lithium bearing minerals.
    The process of producing lithium from brines is generally much lower cost than that from hard rock minerals.

Roskill estimates that total global production of lithium in 2012 reached 83,000t from lithium minerals and 86,000t from lithium brine operations.

Current global production of lithium is highly concentrated, both geographically and in corporate ownership. Approximately 85% of world production comes from Chile (Sociedad de Quimica Minera de Chile SA, or SQM, and Rockwood Lithium), Argentina (FMC Corp), and Australia (Talison Lithium).

Brines

Lithium brine bodies in salt lakes, or salars, are formed in basins where water which has leached the lithium from the surrounding rock is trapped and concentrated by evaporation. The process of extracting the lithium from brines involves pumping the brines into a series of evaporation ponds to crystallize other salts, leaving lithium-rich liquor. This liquor is further processed to remove impurities before conversion to either lithium carbonate or lithium chloride for further upgrading to lithium hydroxide. The majority of the products from the brine operations are destined for the chemical application markets, with the remainder consumed in technical applications.

Nearly one-half of the world’s lithium production comes from lithium brines in an Andes mountains’ region encompassing parts of Argentina, Chile and Bolivia (no current production). This area is often referred to as the “Lithium Triangle” and the primary brines are illustrated below. In the mid-1990s, the development of these large-scale, low-cost brine resources in Chile and Argentina by SQM, Rockwood and FMC fundamentally changed global lithium supply. With its cost advantage over mineral-based production, brine producers lowered prices to gain market share, resulting in closure of mineral conversion plants in the USA, Russia and China.

Minerals

Lithium can be contained within hard rock minerals. There are three lithium minerals commercially mined today: spodumene, petalite and lepidolite. Spodumene is the most important commercially mined lithium mineral given its higher inherent lithia content. Both open pit and underground mining methods are used to extract lithium minerals. Typically, the mineralized rock contains approximately 12% to 20% spodumene, or approximately 1% to 1.5% lithium oxide.

Once extracted, the lithium mineral ore is crushed and subjected to a number of separation processes to upgrade the lithium content by removing waste materials. Different separation processes will produce concentrate with differing levels of lithium content, which can be used in either the technical or chemical-grade markets. Chemical grade lithium concentrate sold to chemical producers undergoes additional processing through the sulphate route process to convert the chemical-grade lithium concentrate to a variety of lithium chemicals including lithium carbonate, lithium chloride and lithium hydroxide.

Operating costs at mineral conversion plants are largely dependent on the prices of key raw materials (namely spodumene, sulphuric acid and soda ash) and energy. Soda ash in particular is an energy intensive chemical. Australian-based Talison produces the vast majority of lithium from minerals and accounted for 70% of global lithium mineral production in 2012. Talison is currently the main supplier of spodumene concentrates to the Chinese market.

Lithium Prices

There is no exchange traded market for lithium chemicals, as prices are set by negotiation between producers and customers often based on customer-specific formulations. Prices for lithium concentrates used for conversion into chemicals are correlated to, and tend to follow the same trend as, lithium carbonate prices.

Although prices vary by product and contract, SignumBox’s “Analysis Issue 08: Lithium, Batteries and Vehicles / Perspectives and Trends” estimates the average Lithium prices from January 2012 until December 2013 as below.

Orocobre believes that over the medium term demand will be more strongly influenced by Asia and supply dominated by Australia, China, Argentina and Chile. A dramatic increase in production of new brine-based producers or mineral source to supply mineral conversion plants in China will be necessary to meet future demand. The marginal cost of this Chinese mineral conversion supply is expected to forms the base for lithium carbonate prices going forward.

 

 

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