In a Fastmarkets interview, Nevada's Surge Battery Metals chairman discusses the need for transparency.

Slackening growth in electric vehicle sales and an oversupply in China's battery capacity are weighing on demand for battery metals. While lithium, cobalt and nickel remain in oversupply, the response from producers cutting output will influence the long term, especially by slowing and halting the promise of U.S. lithium production. Demand will continue to increase over the next decade, revealing any weaknesses in domestic supply.

Currently, the U.S. is sitting on a wealth of underutilized lithium. In 2022, the U.S. only produced about 5,000 metric tons of lithium carbonate-equivalent (LCE) – an industry standard for measuring lithium production – and imported a projected 19,000 metric tons of LCE.

The U.S. International Trade Commission shows that the U.S. imported nearly 154,000 lithium cells and batteries (excluding spent products) from China in 2022, up from nearly 109,000 units in 2021 and more than double the approximate 71,000 units imported in 2019. Indonesia, Japan and Singapore were the other major suppliers in 2022.

However, from January through May of this year, U.S. imports of lithium cells and batteries from China, Indonesia, Japan and Singapore fell significantly in comparison to the same five-month period last year.

Surge Battery Metals owns the Nevada North Lithium Project, which has an estimated resource of 4.7 million tonnes of LCE with a grade of 2,839 part per million of lithium and an overall composite grade of 4,939 ppm in the Granite Range southeast of Jackpot, Nevada.

Graham Harris, chairman and director at Surge Battery Metals, believes that despite the lithium market being characterized by low prices and oversupply, there will be a turning point heading into 2030 when the U.S. is going to need a secure domestic supply. While the market faces an oversupply in the short term, it won't last as market dynamics adjust.

"We need more pricing transparency. In some contracts ... what you see is some foreign account of pricing with no context of sizing." Harris told Fastmarkets in an interview this month. "We do hear that some of the contracts between domestic suppliers and battery/car companies are much higher than what you see published in the day-to-day lithium pricing."

This lack of cost transparency and consistency has created investor reluctance and difficulties for U.S. lithium mining projects to get underway, leaving fewer options and an uncertain reliance on government aid and policy support, which has yet to be fully fleshed out.

"Transactional pricing is out there, but it would be great if we had more transparency in the markets," Harris added. "[Lithium] is not listed on [the London Metal Exchange] for example, we don't have a future market."

Growing demand, U.S. constraints

Slowing demand and oversupply have sent China's lithium prices on a general downtrend in 2024, with several Chinese lithium producers considering production cuts or suspension to mitigate losses from high costs amid the ongoing price declines.

However, new projects in North America are facing their own production constraints while Chinese investments pour into regions such as Africa, which offer a cost advantage.

"In North America, demand is growing, [electric vehicle] penetration is slower than people thought but it's still growing around 25% per year. We know that the market needs domestic supply but almost nobody's doing anything about it, car companies or battery companies," Harris said. "In the long term, people want green energy, the government wants to support green energy and businesses are looking to provide green energy. EVs are a natural solution."

Our grade is 3-4 times the conventional clay deposits that people have been working on in North America and it is considered the highest clay lithium resource in America," Harris noted, pointing out that the usual imports are also going to suffer. "They may have a competitive cost advantage, but, with the Inflation Reduction Act (IRA), they are not going to allow those batteries to be rebate eligible in North America," Harris continued.

Investing in non-U.S. trading partner countries is not a long-term solution. One of the reasons for this is the IRA penalizing companies using material from nations labeled as "foreign entities of concern" due to economic or security risk, which includes companies based in China, Russia, North Korea and Iran.

"We are not getting involved in a project in Argentina, for example, because if they ship raw lithium products to China to be upgraded and incorporated into batteries, those batteries will not qualify in the U.S. under the current IRA," Harris said, adding that it is better to focus on domestic supply.

"As long as prices stay low, some companies will cut production, some will delay expansion and some of the feasibility stage companies will not get funded," Harris said. "Since it takes a long time for supply to come on stream, it is inevitable that there will be another supply crunch. EV demand is still growing at 25%," he said.

Cebbi for Pixabay

The U.S. continues to import growing numbers of battery cells from Indonesia, Japan, Singapore, and China.

Nevada's high-grade source

Surge Battery Metals produced an initial assessment of the Nevada North lithium project in February. According to the estimate, the project contains an inferred mineral resource of 4.67 million metric tons of LCE with a grade of 2,839 parts per million lithium at a 1,250-ppm cut-off.

"We are in the preliminary economic and development phase. Based on additional drilling in 2024, we will release an updated [estimate] in September. We are aiming to deliver a preliminary economic assessment in December this year," Harris said. "We don't have a specific date to start producing, but based on similar project timelines, we estimate 2030 as a target start date."

The extraction process will utilize the same flow sheet used at the sedimentary-clay deposit at Thacker Pass, which is the largest-known measured and indicated lithium resource in North America, according to owner Lithium Americas. Due to the unusual source (not hard rock or brine), Thacker Pass will use a newly developed process to extract lithium from the clay deposit, similar to mining techniques for coal deposits.

"One of the key advantages of clay, unlike spodumene where you sell a concentrate and you get a discounted price, is that we can actually produce carbonate and/or hydroxide directly," Harris said.

"We can extract a premium price from the clays as we are producing a premium end product," Harris added, noting that spodumene is typically shipped to China to be upgraded into battery-grade lithium, which would disqualify it under the IRA. Surge Battery Metals will also try to secure funding from the Department of Energy.

"We will certainly be applying for [funding] because, for mining companies, when we are looking at traditional construction debt financing, it's expensive. And ... the IRA that would greatly enhance the economics of the projects," the chairman added.

Meanwhile, leaders in the global lithium market are still seeking to clarify definitions of compliant lithium to determine what imported supply, if any, will qualify for the financial incentives offered by the IRA.