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In early phases of once-in-a-century demand transformation
Increased sales in electric vehicles is expected to drive a six-fold increase in the demand for the lithium that goes into the rechargeable batteries that power them.
South American brine operations, such as this mine at Salinas Grandes salt flat in Argentina, have traditionally supplied the majority of the world's lithium needs. Battery driven demand, however, has pushed the growth of hard rock lithium mining.
Despite global mines supplying more lithium than markets demand and the effects COVID-19 is having on the worldwide economy, Morningstar Inc. sees the 2020s as being "a transformational decade for lithium, as demand will grow over six times 2019 levels."
This forecasted growth in lithium demand will be largely powered by an uptick in the adoption of electric vehicles and the lithium-ion batteries that power them.
Roughly 305 metric tons of lithium was consumed globally during 2019. Electric and hybrid vehicles accounted for about one-third of this lithium use. The balance went into other rechargeable batteries and industrial applications.
With the novel coronavirus outbreak slowing the global economy, Morningstar foresees lithium demand falling off a bit this year, to an estimated 288,000 metric tons, before rebounding to 362,000 metric tons in 2021.
"Low prices will continue through 2020 from a demand decline due to the COVID-19 pandemic and ongoing oversupply. However, we see the light at the end of the tunnel," Morningstar penned in an April report on lithium markets. "By the end of 2021, the lithium market will return to balance as demand growth resumes from increased electric vehicle adoption and other batteries and eats up new supply."
From there, the global investment research provider foresees a sharp climb in lithium demand to 1.9 million metric tons by 2030.
Lithium mirrors EV growth
The sharp rise in the need for lithium largely mirrors the Morningstar's forecasted growth in fully electric and hybrid vehicles.
"By 2030, we forecast half of all new auto sales globally will be electrified in some form," the research firm wrote.
This includes an expected 20% of all vehicles sold in 2020 being fully electric. This is higher than analysts' consensus of around 15%. Anywhere in this range, however, is a substantial increase over EV's 2% share of the market in 2018, which equates to a lot more batteries and the lithium that goes into them.
The advisor sees the sharpest increases in EV sales after 2025, when it expects the costs and convenience of owning and fueling an EV to be on par with internal combustion engine vehicles.
"By 2025, EVs will not only reach cost parity with internal combustion engines (ICE) but performance parity as well, featuring comparable driving range and recharge time," Seth Goldstein, senior equity analyst at Morningstar, penned in an October forecast on EV sales. "The 2020s will also be the decade of the hybrid, as these partially electric vehicles will reach 30% of new auto sales by 2030."
Beyond EVs
While EVs are expected to be the largest drivers of lithium demand, other batteries and industrial uses are expected to add extra juice to the lithium markets over the next decade.
Morningstar expects that the batteries used for utility, commercial and residential power storage; commercial electric vehicles; battery powered bikes and scooters; cordless electronics; power tools and countless other rechargeable devices will consume roughly 440,000 metric tons of lithium in 2030, which is roughly 44% more than all of the lithium demand used by all sectors last year.
Industrial uses – such as greases, glass, and ceramics – has traditionally been the market driver for lithium. These applications, which take advantage of lithium's ability to transfer heat without changing size, were overtaken by the lithium-ion batteries in 2018.
Following the expected COVID-19 setback this year, industrial applications are expected to contribute to marginal lithium demand growth over the next decade. By 2030, this once king of lithium consumption will only account for about 150,000 metric tons, or about 8% of global demand.
Demand lifts price
Morningstar forecasts the massive growth in demand from EVs and the plethora of other industrial and consumer goods powered by rechargeable batteries to push lithium prices higher, but not to the $17,000 per metric ton levels reached in early 2018 – at least on average.
"We forecast a long-term lithium carbonate price of $12,000 per metric ton in 2020 real terms. Higher prices will be driven by growing demand for high-quality lithium and the need for higher cost supply," the analyst inked in its April lithium forecast.
Due to oversupply from new mines coming online to meet the emerging demand, the price for battery grade lithium carbonate has dropped to around $8,500/mt.
"The lithium market is currently oversupplied, leading to prices below our long-term marginal cost. However, we forecast the market will balance in 2021 as demand growth returns and new supply is delayed," Morningstar wrote.
While the ride is expected to be bumpy as lithium producers adjust to the demand being powered by rechargeable batteries, which will cause booms and busts that result in wild swings in the price of this lightest of metals, Morningstar believes lithium "is in the early phases of a once in a century demand transformation."
More information on lithium and the mining of this battery metal can be read at Plenty of lithium to go around for now in the Feb. 7 edition of Metal Tech News.
With more than 16 years of covering mining, Shane is renowned for his insights and and in-depth analysis of mining, mineral exploration and technology metals.
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