This article is based on the Outlook on Lithium roundtable discussion recorded on 1 September 2021 for our “The Assay Live” webinar series. It features Rodney Hooper, Partner at RK Equity and Co-Anchor of the Lithium-Ion Rocks!™ podcast; Chris Berry, President of House Mountain Partners; Emily Hersh, Managing Director at DCDB Group; and JP Vargas de la Vega, Managing Director of Galan Lithium.
Rodney, I wonder if you could kick us off with some thoughts on whether you see a sustained high price for lithium. Also, what’s your view on the supply side at the moment?
Rodney Hooper: Yes, I think the lithium market has been caught off guard in terms of how quickly demand has exceeded supply and gone through inventories that were sitting in the system; and now we find ourselves in a position where we have just come out of August and the price assessments for battery grade carbon and hydroxide in China are over $20,000 a tonne already, and we haven’t event got to the high-demand period later on in the year. What’s going to happen from here? It’s very tight on the supply side. You’re already seeing SQM pretty much producing at maximum and I think going through some of the last of their inventory and other companies trying to come online.
The key thing now really to save it is spodumene and that’s in tight supply. The question is if it keeps going at the rate that it is, is it worth selling some if you don’t have that downstream processing capacity? At the moment I’m not sure what’s going to fill the gap.
I guess the only thing that could slow things down is the chip shortage – possibly with some EV production coming offline – but it looks very difficult. There’s nothing on the horizon for some time, so there’s no reason to see prices not rise further unless OEMs actively decided to take their foot off the accelerator. But in Europe you’ve got a carbon emission penalty, so it’s not optional. I can’t see what’s going to stop prices continuing upward.
There’s talk of a perpetual deficit in lithium. Do you see a situation where we’ll ever get back to a balance if you look at these interpretations?
Chris Berry: I think probably everybody agrees that we’re in the early stages of a pretty sustainable bull market for lithium chemicals. We all know how long it takes to bring not even greenfield, but brownfield assets on stream and get that product qualified and get it put into supply chains, which, further downstream, are under a lot of stress as well. I will say one of the things that I’m encouraged by in the current cycle, relative to say 2015 to 2018, is that the type of capital that’s coming into the space, and not just the amounts but the type of capital, is much more sober and more patient than it was, say in 2015 or 2016.
To your question about perpetual deficits. I’m pretty nervous about jumping on that ship, so to speak. I think any time you have a business, whether or not it’s commodities or specialty chemicals, and you’ve got 30% margins in a business that’s growing at 20% a year, my personal view is I think lithium demand will grow at 20% a year up to 2030. That’s going to attract a lot of competition, it’s going to attract a lot of eyeballs. The risk of an oversupply situation that we had in, say 2018, 2019, 2020, I think is diminished today relative to what it was but it’s certainly not zero. There are some potential bumps on the horizon there.
Emily Hersh: I think that the type of capital is not just sober and patient but it’s also stickier, as in it’s committed to and more capable of taking on these long timeframes from getting a project qualified. One of the big changes is that last time there was a boom it was really a question of the mining money didn’t understand the lithium business, and the chemical money didn’t understand the mining business. Where those two thought processes needed to meet in order to get the right kind of capital to the right kind of lithium projects was absent, whereas now I think the expertise within the lithium space in general is not limited to a handful of folks who happen to be the ones who have that experience.
I think that mining groups and mining money have learned a lot more about the fact that maybe just selling spodumene is not the best business to be in. Maybe understanding that there is a big value add between when it comes out of the ground and when it’s ready to go into a battery. And then likewise I think that the OEMs and the automakers have hopefully learned some valuable lessons in that they can’t just sit and wait and expect the product to be there when they need it.
Are we in all agreement around EV penetration rates? Is everyone now scrambling to revise their forecast of EVs by 2030, for instance?
Chris Berry: In some ways, 2030 is a long way away. And when you think about automotive cycles, it’s really not. But I have long maintained that if we get to a 10% EV penetration rate by 2025, that is a slam dunk, home run, touchdown.
Sure, it all comes down to raw material availability but not just the availability, the ability of the producers existing in the near term to produce material on spec when you also have the moving target of battery chemistry that’s going to continue to evolve as well.
JP Vargas de la Vega: At a high level view of what we’re facing, it’s like what happened 100 years ago when horses made way for the combustion engine; now the combustion engine is going to be retired, maybe within the next 10 to 15 years. Market penetration of new technology has been seen time and time again, such as with mobile phones. What we’ve seen is unprecedented in a way in terms of money. There is a market and we’re going to go up and down. We’re going to see bursts of supply here and there, but when you look at the companies that can respond today, they’ve got that limitation in what they can do.
Then when you start asking yourself, where is all of the rest of the lithium going to come from? You can see at a macro level, Argentina’s still got projects that can produce more. Forget about Chile – let’s not bring in any more than what Albemarle and SQM are allowed to, even though Chile’s got a fantastic endowment of salt flats. I’m originally from Chile and I’m developing an Argentine project, so that answers that question. Australia has been quite busy in terms of exploration for spodumene, but the rest will come from Africa.
It’s a big problem to have as a lithium explorer and developer. It’s not a big problem to have if you are a battery maker.
Are we going to see more of a variety of prices and product quality depending on where the lithium has come from or how it’s been sourced?
Emily Hersh: I think more quickly than that we’ll see a wider variety of lithium chemicals on the market, especially as battery chemistries evolve and different pieces of the process gravitate towards where the ecosystem exists to support that part of the process.
But there’s so much happening in terms of not just electrifying vehicles, but electrifying everything. And so I think what wider range of what is a sellable product or not is going to evolve more quickly than a variety of pricing. When it comes to will you get essentially a premium for having a greener project, I think that premium will come at your cost of capital, not at the end sale. I think that folks who are able to demonstrate an environmentally sustainable process will be able to raise capital at better rates than those who can’t.
Everyone believes the demand story, but when it comes to alternative chemistries, sodium-ion batteries, or not using lithium-ion batteries for every electrification use, for instance, do these pose threats to lithium demand?
Emily Hersh: When it comes to applications for mobility, and especially anything outside of very heavy trucking or very heavy power applications, we’re going to see, in my opinion, lithium-ion and innovations within lithium-ion to make the lithium-ion battery better, and then we’ll eventually get to a chemistry that uses lithium metal. Other applications or other chemistries that are going to continue to develop, they all have a timeframe to come out of a lab and get piloted and be seen at scale.
Rodney Hooper: The reality is lithium-ion can get the job done. That is the beauty of lithium-ion – it has incredible potential. I guess given the scarcity and costs we’re going to see a shift. What we’re seeing is something we haven’t discussed because it took us enough years and exhaustion to get the EV thematic believed and now it’s there. I would say post-2025, in my opinion, if you’re going to make major inroads into GHG emission cuts, aviation is the next thing on the horizon. That’s going to need very specific, high-performance batteries.
Chris Berry: I’ve never been bullish on second life for lithium-ion. A lot of people forget that you’re going to be dealing with a used cell, a used pack. Maybe it has 70%, 80% of its useful life left over, which is a lot but there is a cost to dismantling and then reconfiguring that pack and that cell for long duration energy storage. Lithium, again we’ve talked about this a lot on these panels, it has a 30 -year head start on a lot of other chemistries.
Vanadium redox is a much better solution for long duration energy storage, say four hours plus. It’s infinitely recyclable. Yes, it does not quite have the energy density that lithium-ion does, but it’s a much more realistic, I would argue long term, duration energy storage solution. As the market evolves I think it’s going to be really hard to beat lithium-ion, whether or not it’s solid state or LFP, lithium-sulphur, whatever the market evolves to. I don’t think there’s going to be a one size fits all approach but I do think you’re going to see a lot of growth in these alternative chemistries, like vanadium redox.
