Essential for the production of lithium-ion batteries, which power electric vehicles (EVs) and energy storage systems (ESS), lithium has earned the nickname “white gold”. However, the journey of lithium prices has been anything but steady, with supply chains heavily dependent on China and recent declines in electric vehicle adoption.
To shed light on the lithium industry’s challenges and opportunities, we welcomed Eric Norris, president of energy storage at Albemarle, one of the world’s largest lithium producers, to a recent episode of the Fast Forward podcast. We recap the discussion below, including exploring the complexities of the lithium market and its critical role in shaping a sustainable future.
Key points from the discussion include:
- State of the Lithium Market
- Lithium prices and developments in lithium pricing mechanisms
- Challenges in lithium refining
- Crucial drivers for electric vehicle demand
- What’s next for lithium supply, lithium demand and the broader landscape
What is the state of the lithium market and have lithium prices hit rock bottom?
The current environment presents challenges for the energy transition, especially in the Western world, despite a long-term upward trend. Electric vehicle sales continue to grow by more than 20%, but lower-than-expected demand has pushed prices down.
Regional performance also varies, with most of the increase in electric vehicle sales in China, while North America and Europe saw weaker-than-expected growth. To meet the expected growth in industry demand by the end of the decade, improved incentive pricing is needed to avoid hindering the energy transition.
I can’t tell you if the prices went down because they were unpredictable. I will tell you that these are below marginal cash costs and well below incentive cash costs. A western expansion, even a Chinese expansion, is now moot at these price levels.
Eric Norris, president of Albemarle Energy Storage
In a challenging market, companies must remain nimble as prices may remain low longer than expected. It is essential to take advantage of competitive advantages and be prepared to pivot as the market changes.
Albemarle’s competitive advantage lies in its position as a cheap resource in brine and rock, Norris said. Although there is currently no market for brine, spodumene is in demand and generates healthy EBITDA margins for the company. For lithium salt, however, there is a lack of margin and it is difficult to earn an acceptable return on investment at current prices.
While current price levels are not sustainable for growth, there is optimism for future improvements, Norris said.
How could the price of lithium evolve? Is there an opportunity for lithium premiums and trading?
Lithium prices can vary significantly by source and specification. Understanding market values ​​is crucial to identifying pricing opportunities and determining growth strategies in the lithium industry. For example, how valuable is sustainability? Would it be able to justify the higher costs associated with processing technologies?
Norris said Albemarle is experimenting with sealed bids and focusing on price discovery to understand product value based on factors such as sustainability, source and specifications. Norris emphasized the importance of sustainability in product sourcing, highlighting the challenges in achieving this given the limited options outside of China. There are regional differences in value and strong leadership and market differentiation are needed to address these challenges.
Norris also believes there will be increased opportunities for lithium traders to enter and expand their presence as the lithium industry grows. This is essential to increase market liquidity and enable hedging of price risk. Evidence of efforts to build liquidity and infrastructure for a healthy lithium futures market is already being seen in major financial centers such as New York, London and China. While trading is a smaller fraction of Albemarle’s business, it provides flexibility in supply chain management and insight into future price trends. In general, trade plays a crucial role in the development of industry.
Looking for the latest lithium prices, news and market information? Go to Fastmarkets lithium center.
What makes lithium refining a challenge for many in the industry?
Norris believes there are three key reasons for this:
1. Chemical process expertise required in lithium refining
Refining is challenging because of its reliance on chemical processes, requiring expertise that people in the mining-focused industry may lack. In regions where infrastructure, expertise and a reliable supplier base are insufficient, it will take time for progress to be made.
2. Meeting customers’ changing specifications in lithium products
Meeting ever-evolving customer specifications for product purity, size and morphology, while ensuring standards for both safety and longevity, is becoming increasingly difficult. This involves fine-tuning processes to produce quality products to meet customer demand.
3. Capital requirements for lithium refining infrastructure
Capital intensity is another barrier. Building large chemical plants involves significant investment in infrastructure, including extensive steel foundations and a complex array of unit operations to manufacture the product.
The exception to this is China, he said. China has a strong talent pool, efficient supply chains and lower capital costs, giving it a competitive edge in both chemical refining and battery manufacturing.
As for direct lithium extraction (DLE), Norris sees it as a complement to hard rock projects rather than a threat. Although it may seem disruptive, DLE has been practiced for decades and can unlock resources that are otherwise difficult to mine. It doesn’t necessarily reduce costs, but rather unlocks value. As demand for lithium increases, DLE will play a significant role in making brine resources economically viable.
What does the future of EVs look like for the rest of the decade?
The future of electric vehicles depends on government policies. Initiatives like the Inflation Reduction Act (IRA) and Section 30D Clean Vehicle Tax Credit provide affordability to consumers while benefiting original equipment manufacturers (OEMs) by positioning the credits at the consumer end of the supply chain. However, these credits are dependent on essential raw materials originating from the country or free trade friendly countries. At the moment, the benefits do not reach those upstream raw material producers.
On the other hand, it is important to understand that the energy transition involves not only switching to new energy sources, but also ensuring energy security. This in turn is related to national security and access to technology. Collaboration between private industries and Chinese manufacturers is often greater than the public narrative suggests, but national security remains a critical factor influencing current policies.
We will just have to make the right decisions, the right investments and the right incentives. It’s all about electric vehicles, so I think it’s going to happen.
Eric Norris, president of Albemarle Energy Storage
In an ideal scenario, Norris envisions a future of improved global collaboration, reduced tariffs and less hostility, along with stronger regional supply chains. This change could lead to a healthy energy transition and a significant increase in advanced technologies, with demand projected to grow two and a half times.
A key indicator of that future is the benchmark of $100 per kilowatt-hour, which China has surpassed and hopes the rest of the world will catch up with. This will signal a tipping point for electric vehicles versus internal combustion engines (ICEs). For this to happen, continued investment and the right incentives are crucial.
What’s next for the lithium industry?
According to Norris, the future of lithium looks like this:
1. Future supply of lithium
Africa is attracting significant attention as a potential growth area with large-scale, high-quality resources. While the continent has abundant lithium resources suitable for low-cost operations, challenges such as conflict, nationalism and infrastructure problems vary from region to region. Historically, Western companies have faced difficulties due to corruption and environmental, social and governance (ESG) concerns, making them hesitant to enter. However, many Chinese firms have been successful in these markets, positioning Africa as a likely key supplier for China’s growing energy and energy storage needs.
2. Application and application of lithium
While electric vehicles dominate current demand for lithium, new technologies such as advanced lithium metal batteries have significant value for the defense industry and national security. Governments increasingly view energy storage and access to these technologies as strategic, given their applications beyond electric vehicles, such as grid protection and modern warfare, where lithium plays a crucial role. This presents unique opportunities for these technologies to develop faster than in the EV sector.
3. Lithium landscape
The future lithium landscape in a decade is designed to feature three key regions: China, North America and Europe, each with self-sustaining supply chains. Global trade will continue, with resources from Australia, Chile and Africa contributing to this interconnected market.
Listen in full Fast forward podcast episode to capture the full conversation with Eric Norris, covering topics including Albemarle’s projects and plans, industry mergers and acquisitions, lepidolite production in China, oil companies’ involvement in the lithium market and more.
#state #lithium #market #price #lithium #evolve #Fast #markets