The market for lithium-ion (Li-ion) batteries was 92GWh in 2016, a ten-fold increase from the 9GWh used a decade earlier. Growth has been driven by an increase in the number of applications using them, as well as gains in market share versus other rechargeable battery types. From the 1990s through to the early 2010s, the market was predominantly in portable consumer electronics, with the transition from mobile phones to smartphones, and the introduction of tablets, increasing battery capacity per device despite lower unit sales growth as markets became saturated. More recently, growth has been accelerating as the automotive market has started to electrify its powertrains. Automotive uses absorbed almost 50% of Li-ion battery output in 2016, up from 27% in 2014 and 7% in 2012; a large jump in electric bus output in China in 2015 being the main driver.
Transport to dictate Li-ion battery market through to 2026
A strong government drive in many countries to increase penetration of hybrid, plug-in and full electric vehicles (xEVs) to meet emissions objectives is underpinning xEV development. Meanwhile falling battery costs, improved battery range and charging infrastructure build-out is reducing vehicle costs and boosting consumer interest. Tesla has made EVs the iPhone of the automotive world, if not driving the market by volume then certainly in appeal. Roskill expects the positive trend in xEV sales to increase and full electric vehicles to compete on price with current gasoline/diesel models in the early 2020s without incentives; the transportation market for Li-ion batteries in our baseline forecast could therefore reach 405GWh in 2026, representing a 25%py increase.
A similar rate of growth is forecast for energy storage systems (ESS). Emissions objectives again play a role, but so does the economics of electricity grid management where increased storage may reduce other costs relating to generation and to the network. For the consumer, storage offers the opportunity to reduce electricity costs and to benefit fully from self-generation. Roskill forecasts an ESS market for Li-ion batteries of 13GWh in 2025, up from 2GWh in 2016, but its growth trajectory could change more quickly as costs fall and renewable energy up-take rises.
The accuracy of any automotive electrification forecast will depend largely on how closely developments in xEVs match expectations. Government resolve, cost and performance trends in batteries and the strategy of automotive companies are all important variables here. Compare President Trump’s stance to emissions targets versus China for example. Similar comments apply also to ESS, another high growth market. High/low scenarios and the drivers are therefore vital to assess the upside and downside risks.
Lithium hydroxide to benefit from changing battery chemistry
Li-ion battery cell assembly draws upon a complex supply chain of largely unrelated product groups, within which nonferrous metals and minerals play a major role. Important materials groups include cathode materials, anode materials, electrolyte, separators and current collectors. Li-ion batteries are normally specified by cathode chemistry. The alternative chemistries, and specific formulations within them, offer a very wide range of power, energy, safety and cost options appropriate to different applications.
With the growing emphasis on xEV and ESS markets, demands on materials suppliers are changing. This is very evident in cathode materials, where the market has shifted away from high-cobalt LCO cathode typically used in portable electronics to nickel-rich products, primarily NMC but also NCA, which offer higher energy density per unit of mass and volume. Another xEV material, LFP, has been used extensively in China, but is now losing ground to NMC and NCA although it remains favourable for eBus, HEV and ESS applications. When cathode nickel content exceeds 50%, or manufacturers use a sol-gel method of LFP cathode manufacture, lithium hydroxide is the favoured lithium feedstock. Lithium hydroxide will therefore outpace carbonate demand growth.
Alongside the uncertainty over market growth rates, technological developments also present a risk to product demand in future. Li-ion technology is approaching the upper bounds of practical energy density, with only a 20-30% improvement likely before the buffer is hit. Current research and trends suggest that solid-state Li-ion batteries and lithium-sulphur batteries will be the next improvements and might achieve mass commercialisation in the mid-2020s. This will mean a shift in material requirements to lithium metal and lithium sulphide, although solid-state retains a mixed metal cathode. Lithium producers shouldn’t rest too easily versus their cobalt or nickel counterparts, however, as an entirely different battery technology could wipe lithium out, but as yet no strong contenders on price/performance have emerged as viable alternatives.
Rapid developments in the lithium supply chain incentivised by price increases
The increase in lithium prices from end-2015, combined with a growing realisation that vehicle electrification is finally happening en masse after several false starts, has caused a rush in companies staking, purchasing, evaluating or expanding lithium assets. An additional 370,000tpy LCE of lithium production capacity has been identified by Roskill as scheduled to come online at existing and new operations by 2020, although it is unlikely all of this capacity increase will be realised. Around 250,000tpy LCE of capacity (factoring utilisation rates and ramp-up) will be needed just to satisfy battery market growth alone at current projections. That is double current capacity, and equivalent to two sizeable projects a year. Any hiccups will reverberate through the supply chain, and consumers are not currently doing enough to ensure their future supply chain. Competition and shortages mean higher prices, and a return to mid-single digit pricing is unlikely given the incentive needed to get projects to production. Lithium developers have mistimed demand in the past, and it is the downside – and memories of the supercycle peak – that is putting investors off financing projects despite the equity boom.
Major existing lithium producers including SQM, Albemarle and Tianqi Lithium have all announced plans to increase output of lithium. The Greenbushes mine in Western Australia, the largest lithium hard-rock mine in the world – owned by Tianqi Lithium and Albemarle – announced a scheduled capacity expansion from 95,000tpy LCE to 165,000tpy LCE by H2-2019, an increase of over 42%. The increased output is expected to supply Tianqi Lithium’s new 24,000tpy lithium hydroxide plant in Western Australia planned for commissioning in 2018 and Albemarle’s newly-acquired Chinese conversion assets which are being expanded. In South America, Albemarle announced plans to increase production capacity at the Salar de Atacama operation by 45% to 80,000tpy LCE, after receiving extended permits from the Chilean government. SQM has also announced plans to increase processing capacity at the Salar de Carmen plant near Antofagasta, and is contributing to the 50:50 joint venture it has with Lithium Americas in the Salar de Cauchari brine project due online in 2019.
Existing and new producers have encountered issues with ramping up output of lithium compounds, meaning contingency for delays needs to be factored in. In Argentina, Orocobre has reduced its production targets for battery grade lithium compounds in H1 2017, although it plans to increase output to full capacity in the second half of the year. Lithium brine operations in China, based predominantly in Qinghai province, have struggled with unfavourable brine chemistries, but the implementation of new processing methods by new owners in 2017 could resolve these problems and allow Chinese brine producers to increase output. Galaxy Resources and Quebec Lithium tried and failed to establish alternative lithium supply from mineral sources in the early 2000s, but are now trying again under new management.
The emergence of new mineral producers in Australia during 2016 has improved the availability of lithium feedstock to Chinese mineral converters previously reliant on Talison. Galaxy Resources and Neometals began shipments of lithium mineral concentrates to customers in China at end-2016, with approximately 45,000t LCE forecast to be shipped in 2017. The improved diversity of mineral concentrate supply into China is expected to alleviate supply-side pressure and contribute to an easing in Chinese domestic lithium prices. Chinese mineral converters continue to seek new raw material sources, signing supply contracts for unprocessed (direct shipping / DSO) lithium ores from the Wodgina mine operated by Mineral Resources and Pilbara’s planned Pilgangoora mine, both in Australia. Mineral Resources intends to ship up to 50,000tpy LCE contained in unprocessed ores to China, though this will be reduced after recovery rates in concentration and processing are applied. Whether Ruifu, the buyer, can process DSO effectively given the challenges Galaxy and Neometals have had in processing in Australia remains to be seen.
Longer-term lithium supply picture expected to change considerably
Increased output by SQM and Orocobre in South America, coupled with increased production from Talison in Australia and a rise in Chinese domestic output, moved the lithium market from a supply deficit in 2015 to marginal oversupply in 2016. Mine supply is likely to exceed demand in 2017, but refined output will lag. The overall supply-demand balance for lithium is not representative of the industry as a whole, however, as specific products are required by lithium’s varied end-use applications, not least hydroxide for Li-ion battery cathodes much of which is still produced using lithium carbonate feedstock. Simply put, in 2015 and 2016 there was not enough lithium of the required type to feed a battery industry that jumped in lithium demand by 75% in two years.
The diversity and availability of lithium supply is expected to, and will have to, improve further towards the 2020s as a number of new lithium projects are advanced. The shift to Tier 2 assets, with more complex resources, and the need to produce more hydroxide, has catalysed the emergence of new extraction technologies. Leading this charge is Nemaska Lithium in Canada using electrolysis of mineral-derived sulphate solution to produce hydroxide, while Enirgi, POSCO and Eramet in Argentina plan to use direct brine extraction methods to produce lithium carbonate. Lepidolite is seeing increased attention, after Chinese converters proved in 2016 you can make a viable business processing it in a high price environment, with companies such as Lepidico pursuing lepidolite conversion outside China.
Meanwhile Rio Tinto is pursuing evaluation of jadarite mining in Serbia, a major resource but one that has not been tapped for its lithium before. Risks remain, as no new technology, whether mineral- or brine- based, has yet achieved large scale.
With significant growth potential from automotive batteries, lithium will remain an attractive market and see high levels of investment in new production in coming years. The market is currently too small and consolidated on the supply side to have been subject to the trading activity seen in other minor metals or chemicals, depending how you classify the product, but this may change as developers, financiers and users seek to reduce price risk. The crossover with cobalt and nickel in batteries, which are more highly traded commodities, may also present an opportunity for the trading community to get involved. It is conceivable that lithium will also feature on a global exchange in future, but preceeding that perhaps a benchmark pricing system.
Contributors: Robert Baylis and David Merriman, Roskill Information Services, UK. Roskill’s Lithium: Global Industry, Markets and Outlook report was published in May 2017.
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