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The World Is Facing A Lithium Supply Crunch As Demand Soars

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In just one year, the world’s largest lithium producers turned from cautiously optimistic about prices and very careful about expansion projects to decisively bullish on near, medium, and long-term demand for the key battery metal.

The pandemic prompted many governments to commit to greener recovery and to raising significantly the share of renewable energy and electric vehicles (EVs), stoking demand for critical minerals this year. Lithium, alongside copper, has seen prices rising since automakers started pledging all-EV lineups and exponential growth in their electric car offerings.  

Rising immediate demand for lithium and expectations of surging demand in the longer term have increased sales of the top lithium producers, which are now much more bullish on lithium prices and demand, both for the short term and the long run.

Amid the most bullish expectations about the lithium market in years, analysts warn that even the increased project pipeline may not be sufficient to meet the booming demand for lithium—a critical battery metal—in the energy transition. Experts and forecasters also warn that rising raw material prices in the current commodity bull run could actually slow down the energy transition because it could slow the decline in battery costs. Lower battery costs would be critical to EVs reaching price parity with conventional vehicles and allowing for more energy storage deployment to support the rising share of renewables in the electricity generation mix.

Top Lithium Producers Expect Boom In Demand

“Companies across the lithium-ion supply chain are in the best position they’ve been in for the last 5 years,” Pedro Palandrani of the Global X Lithium & Battery Technology ETF, told Reuters.

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Case in point: the biggest lithium producer in the world, Albemarle Corporation, said last week that its first-quarter lithium sales rose as some customers accelerated orders under long-term agreements.

Albemarle is in the final stages of two lithium projects that will double its conversion capacity to around 175,000 metric tons. It expects to approve expansion projects during the second quarter, CEO Kent Masters said.

“We continue to see strong market demand for lithium, especially from EVs,” Masters said on the earnings call.

“We’re fighting to keep up with demand. I think the industry is doing the same,” he added.

Eric Norris, president for Albemarle’s Lithium division, noted that “We see price rising going forward for the foreseeable future.”

Last year resulted in a lot of capacity going out of the market with many projects slowed down, “so it’s going to take a while to catch up and yet demand is accelerating,” Norris said.

Livent Corporation also sees booming demand for lithium, especially with the flurry of announcements from legacy automakers that they are significantly ramping up EV offerings.

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“Escalating demand is becoming more certain as electric vehicles and energy storage become further ingrained with the global consumer. Announcements from OEMs are coming more frequently, both in terms of ambitious electrification targets and the specs and timing of new and highly anticipated model launches,” Livent’s CEO Paul Graves said on the company’s call last week.

Global EV sales jumped by 41 percent last year while the total global car sales fell in the pandemic-related downturn, the International Energy Agency (IEA) said last month, expecting a further surge in EV sales, especially if governments encourage higher adoption with strengthened policies.

Lithium Supply Faces Challenges In Keeping Up With Demand

Livent’s Graves sees challenges ahead for the lithium-producing industry in catching up with surging demand.  

“The challenge for our industry in providing sufficient material over the medium term is clear. While lagging in EV adoption today, the push for domestic electrification is now a clear focus in the United States,” he said.

“Since expansions and new assets need significant amounts of capital and the next wave of resources will have a higher operating cost than today’s resources, we are watching carefully to see whether the market responds with higher prices, more direct investments by customers or some combination of both,” Graves noted.

As per Rystad Energy estimates, the EV surge could lead to “a serious lithium supply deficit already from 2027.” The industry needs to approve very soon new lithium mining projects so that supply has a chance to catch up with demand. The current project pipeline could result in capacity deficits that could triple lithium prices towards the end of this decade, Rystad Energy says.

According to the IEA, lithium demand in 2040 could be 13 to 51 times higher than today’s levels, depending on the advancement in battery technology and the climate targets.

Key Metals Supply Crunch Could Slow Down Energy Transition

A lithium supply crunch would not only lead to higher prices of the metal, but it could also slow down the energy transition since high raw material prices could also slow the fall in battery costs. If battery costs decline at a slower pace than expected, EVs will reach price parity with conventional vehicles later than anticipated, currently expected to take place by 2025. 

“Today, the data shows a looming mismatch between the world’s strengthened climate ambitions and the availability of critical minerals that are essential to realising those ambitions,” IEA’s Executive Director Fatih Birol said last week, commenting on the agency’s report on critical minerals.

“Left unaddressed, these potential vulnerabilities could make global progress towards a clean energy future slower and more costly – and therefore hamper international efforts to tackle climate change,” Birol added.  

By Tsvetana Paraskova for Oilprice.com

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