By Stuart Burns
I was asked recently if I thought the world was going to run out of lithium.
It was the type of question that illustrates the fever that is gripping this small and specialist market, much as the hype that drove rare earth elements through the roof a few years ago and briefly allowed a flood of investment to be available for the development of new mines and processing operations such as Molycorp's (OTCPK:MCPIQ) Mountain Pass, only for the market to then collapse again a year or two later.
Don't Believe the Hype?
An Economist article underlines the case regarding lithium. Much of the recent hype is due to a doubling of lithium carbonate prices imported into China in the last two months of 2015 and comments by analysts from places such as Goldman Sachs calling lithium the "new gasoline" reflecting their opinion that electric vehicles are about to take off - in sales terms, not literally.
Is the investment hype over lithium-ion batteries justified? Source: Adobe Stock/bbbastien.
Yet sales of lithium salts such as lithium carbonate and lithium hydroxide make up a market of only about $1 billion per year, small when you consider - like rare earth elements - their ubiquitous presence in just about every electronic gadget. All-electric cars and, increasingly, power tools and products previously powered by nickel-hydride batteries use lithium.
Even Toyota (NYSE:TM) is reportedly offering its Prius with lithium-ion batteries now instead of the heavier nickel metal-hydride that has been used since the car's launch. Supporters of the global shortage camp point to two main development trends to support their case:
Developments such as Tesla's (NASDAQ:TSLA) Gigafactory in Nevada which hopes to supply lithium-ion batteries for 500,000 cars within five years, or the new GM Bolt which is said to offer gasoline levels of range and affordability, as inflection points in demand.
As with so many commodities over the last decade, Chinese demand is a great unknown but supporters point out that in ten months last year Chinese firms sold more electric vehicles than Tesla has since 2008 with Chinese firms such as state owned CITIC moving into the supply chain and buying into mines in South America to secure long-term supplies.
Electrical Power Generation
The rise of renewable energy sources and the threat of carbon pricing are encouraging utilities to look at ways of providing peak power without operating stand-by coal or natural gas power plants.
The Economist points to the example of AES Energy Storage, a big provider of energy storage, who won a contract in 2014 to provide a "peaker plant" in Southern California that will provide up to 100 megawatts (MW) of power into the grid at moments of maximum demand.
In December, the firm agreed to buy, over several years, enough lithium-ion batteries from LG to provide ten times this level of peak power - that is, 1 GW, or the equivalent of an entire, modern coal or natural gas-fired power station.
Believe the Hype
Indeed, California is said to have ordered its electricity firms to offer 1.3 GW of non hydroelectric storage capacity within five years, more than double the 0.5 GW of batteries plugged into grids around the world today. On the domestic front, it remains to be seen how popular Tesla's "Powerwall" electricity storage devices become, but, doubtless as the price comes down through competition and technology improvements, they will prove popular in countries where solar panels can supply domestic power economically such as Australia and the southern US, or where power supply is intermittent like in India or South Africa.
So, the immensely bullish indicators are true and not, well, bull. The market is looking good for lithium even though the technology still needs considerable improvement to achieve truly large-scale uptake.