What are your thoughts on current supply and demand of lithium, and how to mitigate the present high prices?
Contrary to recent broker reports, increasing battery-grade lithium supply is a challenge. Cathode producers are under pressure to meet downstream demand – shutting down lines to test new material is difficult. In our opinion, new spodumene mines supplying China’s spare conversion capacity are the quickest route to increased volumes.
China has stifled demand by enforcing COVID lockdowns, which provided near-term relief to spot prices but is not a long-term solution. We remain of the opinion that EV (electric vehicles) sales will be lithium capped at 8-8.5M in 2022.
Despite high spot prices, upstream investment is still too slow. The cure for high prices is high prices but for lithium – where contract pricing is opaque and investment dollars are lacking – high prices could be here for some time. Original Equipment Manufacturers (OEMs) and governments have committed to EV platforms, and selling ICE vehicles isn’t really a viable option beyond 2025/2027. We will only see an oversupplied market when there’s been excessive investment upstream. There’s no risk of that for years to come.
Let’s discuss the future of battery chemistry. Are there any exciting developments you can highlight?
There are a number of new cathode and anode chemistries that look interesting, plus solid-state. However, investors should remember that the lithium-ion battery was a 30-year overnight success. When startups are making bolder claims than Tesla you have to wonder.
What about European supply chains? Can (and how will) the region secure its own supply chains?
Europe has the support of governments, both for policy and financial assistance (grants). However, Europe has a high population density relatively speaking. From a resource perspective, Europe is challenged. There are only a few large lithium resources, such as European Metals Holdings, that can be developed.
We believe commercial DLE production in the region is years off. What would make sense would be for Europe to start by processing spodumene concentrate and/or lithium chloride/tech grade carbonate (supplied from ESG/politically stable regions) into battery-grade chemicals in designated chemical parks/economic zones in conjunction with supporting local mines.
OEMs are taking a growing role in the downstream part of the battery supply chain – at the battery cell level
What do you think of the growing role that OEMs are taking within the battery supply chain?
OEMs are taking a growing role in the downstream part of the battery supply chain – at the battery cell level. Only BYD and CATL are actively engaging in the raw material upstream part. Signing binding offtakes (that are effectively non-binding) with lithium juniors without committing to financing or assisting in permitting is, in my opinion, meaningless.
Furthermore, securing volumes, even with 10%-20% price discounts, won’t alleviate battery pack cost pressures. OEMs need to lock in both prices and volumes. If you look at who Tesla signs offtake agreements with you will quickly note that they prefer established processing technologies. Competing OEMs are choosing unproven technologies with low theoretical carbon footprints as suppliers. What happens when these unproven technologies push their production timelines out 3-5 years? OEMs are focusing on the wrong end of the supply chain.
