As the gap widens between supply and demand for the metal, prices have been rising for everything from the ore of lithium, spodumene, to lithium carbonate and a more refined form, lithium hydroxide. Mexico has nationalized lithium production, and Chile, home to large mines, may do so as well. China is keeping a tight lid on prices and pushing them down to aid its industry. The US is looking to expand lithium supply.
Yet, no solution to close the gap is readily emerging. This is partly because mining has acquired a bad reputation and was dumped in the non-ESG investor bucket. That meant a lack of investment in refining technologies. Companies are now gearing up to deal with surging raw material demand—much sooner than expected—and supply chain snarls. But methods and processes haven’t fully evolved. Plus, a crucial divide between technologies for EV batteries—those that are proving viable (lithium iron phosphate) versus those that still have a way to go but are more energy dense (nickel cobalt manganese)—is adding pressure. More widely used technologies are increasing demand for more basic raw materials, especially out of China. Demand for cathode materials is expected to account for a relatively constant portion—about 25%—of total demand from passenger and commercial vehicle batteries over the next decade, according to Wood Mackenzie. The popularity of lithium iron phosphate batteries, initially seen as inferior, wasn’t expected.
Officials have had to talk down prices of raw lithium compounds in China—where 60% of the world’s lithium is refined—to ensure companies aren’t squeezed and the battery supply chain functions smoothly. High prices have proved prohibitive for batteries used in industrial and large energy storage systems, prompting a wave of order cancellations because costs can’t easily be passed on to consumers.
Prices for the more processed lithium hydroxide, used in higher-tech batteries in China, have dropped as well. This trend stands in sharp contrast to what’s happening overseas with the more refined version as Korean and Japanese manufacturers continue to buoy demand.
Demand for the raw material spodumene continues to rise, and facilities meant to convert it are having difficulty obtaining it—prices have shot up 24% over the past month while those of lithium carbonate and hydroxide have dropped 5% to 7%.
With prices out of whack because of a skewed supply-and-demand picture, it’s hard to say when things will fall into sync. Battery technology continues to evolve as well—more advanced ones could need even more lithium. Hoping mines and production facilities will come online over the next decade won’t cut it, either. Already this year, supply increases have been lower than estimated. Analysts expect the market deficit to widen over the coming decade.
The purchase of mines by car makers, as practical as it sounds for securing supplies for vertical integration, isn’t the solution it appears to be. It is extraordinarily expensive to make it work properly.
The only long-term solution to ease the supply crunch is to drive investment in the mundane mining and processing technology for lithium in an eco-friendly way. This would take private capital and government incentives. Several companies are exploring innovative ways to extract and produce the metal. Mining technologies are resource specific, however, so every technique can’t be used on every mine. The world’s second-largest lithium producer, Sociedad Quimica y Minera de Chile (SQM), for instance, has continued to invest through the ups and downs and in an eco-friendly way. Earlier this month, it committed to investing $900 million this year across the board.
A recent McKinsey report pointed to various methods of direct extraction, but operating costs remain high, as does water use, and of the five different ways to do this, only one is commercially viable. Others are still too expensive. Alternatives to get more lithium include using the so-called direct lithium to product method and supplying spodumene (low-grade ore) to the market and then processing it later, just as Chinese players have done. Ultimately, recycling and reusing old batteries will also ensure supply can keep up.
All this adds up to an intricate picture for future lithium supplies. Elon Musk should know better: It isn’t always just about big profit margins. It requires capital, technology and time.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia.
