Near the end of the year, the tight supply of global lithium resources has increased unabated.
Recently, Pilbara mining company, one of Australia’s largest lithium miners, significantly lowered its lithium production and shipment forecast. The company said that in the fiscal year ending June 30 next year, the shipment volume of spodumene is expected to be reduced to 380000 ~ 440000 tons. Last weekend, Chilean left-wing party coalition candidate boric was elected president of the country. He said that the resource tax levied on local enterprises will be increased, which means that corporate profits will be weakened, and the untapped resource projects of mining giants such as Yabao may be postponed.
Market research institutions such as S & P global market intelligence and benchmark mineral intelligence have predicted that there will still be a large gap between supply and demand in the global lithium market in 2022.
Li Gangfeng, analyst at European Mining Fund commodity discovery, said in an interview with China business that the global lithium supply continues to be in short supply. In addition to epidemic factors, it is mainly due to the lack of global investment in lithium mines in previous years and the high difficulty in developing upstream lithium projects. Even if the supply is increased, it is difficult to match the demand growth. Downstream enterprises can ensure the security of the supply chain by arranging upstream projects, but they should also pay attention to the risks brought by “cross-border”.
why is there a continuous shortage of lithium supply?
Pilbara mining company said that the reason for the reduction of lithium production expectation was mainly due to epidemic factors. During the epidemic, the company stopped production several times unexpectedly and lacked skilled workers. At the same time, the company also faces problems such as limited capital expenditure.
In Li Gangfeng’s view, in addition to the epidemic factors, the shortage of lithium supply in the past six months also has its own problems. From 2017 to 2020, the global investment boom in lithium ore receded. The industry has experienced a cold river period for three years, and the industry is not willing to develop upstream projects.
According to the data of the U.S. Geological Survey, in 2017, the global lithium production (i.e. LCE lithium carbonate equivalent) was 43000 tons, only about half of that in 2020. The Canadian mining company Millennium lithium, which was eagerly acquired by mining companies some time ago, was difficult to borrow funds from banks at that time and had to stop some projects. It was at that time that the management of the company had the idea of selling the company.
Li Gangfeng further said that since 2020, there has been a wave of new energy in the world, and lithium resources have become hot, which has boosted the willingness of companies to develop upstream projects to a certain extent. However, compared with downstream batteries, the development cycle of the supply side and the demand side is not consistent. It is difficult to develop the upstream lithium project, and the supply is difficult to match the demand growth.
According to the benchmark mineral intelligence of the Market Research Institute, it generally takes 4-8 years for lithium resources from exploration to final production, and it takes 2-3 years to complete the facilities for processing ore and converting it into chemicals (i.e. hydroxide and carbonate). According to the Research Report of China International Capital Corporation Limited(601995) , it is difficult for lithium projects that have not yet entered development to be put into supply by 2025. It is estimated that the compound growth rate of lithium supply from 2021 to 2025 will be 33%, lagging behind the compound growth rate of 37% at the lithium demand end.
Li Gangfeng believes that in addition to the fundamentals themselves, government requirements and social response are also important factors restricting the production of lithium mines.
In terms of government requirements, the EIA requirements for lithium projects in Australia, Chile and other countries have been gradually improved, resulting in the continuous delay of the production schedule of many upstream projects. In terms of social response, Rio Tinto’s lithium project in Serbia has been frequently opposed by the local people in recent months. At present, the project has been stranded.
At the same time, Li Gangfeng also said that different countries have different natural endowments, which also restricts lithium mining. “For example, the development of lithium ore requires water resources, but there are many deserts in Nevada in the United States, which has led to the Thacker pass project of lithium Americans in the region having to wait for ten years. Some enterprises also hope to invest in Africa, but the local natural environment and infrastructure conditions are relatively poor.” He said.
downstream enterprises have arranged upstream
Due to the shortage of supply and good demand, the prices of financial assets related to lithium resources have risen all the way. According to FactSet, a market research institution, as of December, the global lithium and battery technology ETF has increased by more than 40% this year, and the share prices of some lithium resources companies have increased by at least 70%. Since there is no futures market as active as oil and other commodities with greater trading volume, investors mainly invest in lithium resources through the stock market.
Many institutions believe that affected by the above fundamentals and other factors, the situation of lithium resource supply shortage will not change substantially in 2022. Citigroup expects that this year and next, the global demand for lithium resources will exceed the supply. Only in 2025 will the consumption of lithium resources be in line with the supply. Bloomberg new energy finance believes that the demand for lithium will increase fivefold by 2030.
Affected by the shortage of supply and rising prices, power batteries and cars, the most important downstream users of lithium resources, have been deployed upstream recently. At present, lithium resources are indispensable raw materials for both lithium iron carbonate and ternary lithium batteries.
Since early December, Volkswagen has signed a cooperation agreement with a lithium mining company in Germany. Portuguese energy company GALP announced that it would establish a lithium processing joint venture with Swedish battery manufacturer northvolt with a total price of 700 million euros. Previously, Koch industrial group has invested US $100 million in standard lithium to produce lithium chemicals in Arkansas.
Li Gangfeng believes that the reason why battery enterprises and new energy vehicle enterprises compete for the upstream layout is mainly to realize the integration of the industrial chain. The benefit is that they can reduce the cost of raw materials and logistics and obtain the bargaining power with upstream enterprises.
According to the data of Bloomberg new energy finance, although bulk commodities account for a small proportion of the total cost of automobiles, the rise in the price of lithium ore in the upstream has led to an increase in the average price of lithium-ion battery packs, which is the first time in the past decade. Generally speaking, batteries can account for nearly one-third of the cost of electric vehicles.
However, Li Gangfeng reminded that although strengthening industrial chain integration is a very important means to avoid upstream price fluctuations, it will also bring certain risks: there are barriers among vehicle enterprises, battery enterprises and mining enterprises. The first two may know little about lithium mine development, which brings the problem of guiding the industry without understanding the industry.
Benchmark mineral information company said in a report that the current rise in raw material prices has put pressure on downstream enterprises, but in the long run, the two major factors that can reduce battery prices are the improvement of battery packaging technology and the improvement of energy density. Cost reduction through technological breakthrough should be the method that downstream enterprises should take.
(First Finance)
