Lithium’s Next Big Risk Is Grand Supply Plans Falling Short – Yahoo Finance

(Bloomberg) — Electric car makers hope an impending wave of lithium supplies will bring relief to expansion plans after two years of strain, but battery metals staunch bulls say It warns that more pain will come if producers fail to do so. delivery.

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Surging global EV sales have doubled consumption over the past two years, and the surge in lithium demand has taken many forecasters by surprise. Total lithium consumption soared from his $3 billion in 2020 to about $35 billion in his 2022, as suppliers couldn’t keep pace and ferocious price increases, according to Bloomberg calculations. soared.

Some bearish lithium watchers say that the deciding factor in 2023 will be rapid growth in supply rather than dizzying demand. Top EV sellers are hoping for a surplus of lithium.

But if miners from Chile to China to Australia hit hurdles in launching daunting volumes of new supplies, there are many skeptics warning of a new strain. The forecasts reviewed see production growth from 22% to 42% in 2023. This is a breakneck pace for a complex extractive industry.

Claire Blanchelande, a lithium trader at Trafigura Group, said by phone from Geneva, “I see no reason to believe that so many tons this year will magically bring the market back into balance.” is not finished yet.”

At stake is the pace at which the world’s vehicle fleets adopt battery power. The cost of lithium-ion batteries rose last year for the first time in the EV era, according to Bloomberg NEF. Elon Musk lamented lithium’s “insane” rise and said high raw material costs were Tesla’s biggest headwind.

does not match

It is widely agreed that lithium supplies are headed for a significant increase in 2023 as a wave of expansions or new projects start and come online. More bearish voices say a wave of supply will hit the market just as the withdrawal of China’s generous EV subsidies will cause a cooling in demand, creating a mismatch that could lead to a sharp drop in prices. Let’s say

Average prices this year are likely to fall about 8% from their average levels in 2022, according to an average of five forecasts reviewed by Bloomberg.

A divisive question is whether less established producers can fully deliver against a variety of regulatory, technical and commercial challenges. The unusual pace of lithium’s expansion across both supply and demand has made market forecasts controversial.

“2023 is when lithium will be in what is called the volume game,” said Chris Berry, president of House Mountain Partners, a consultant in the battery materials division. “We need to see a supply response from both existing and near-term producers who need to perform flawlessly in the face of sustained lithium demand.”

softer market

Lithium prices have already fallen about 20% from November’s spectacular record, an early sign of a temporary respite for buyers. Chinese lithium carbonate fell to 480,500 yuan ($71,500) per tonne on January 13, the lowest since August.

“I think spot prices will drop a bit in 2023, but I don’t think that will be a problem,” said Joe Lowry, founder of advisory firm Global Lithium. “Five years ago today, the biggest problem the lithium industry had was underinvestment. Now the most important issues are permitting and project execution.”

The reason for the optimism about supply is that the biggest increases will come from veteran top producers such as Albemarle Corp. and Chile’s SQM, who are considered more likely to succeed. However, it only accounts for about a third of the expected increase in 2023, according to data from BMO Capital Markets.

The next tier is a small army of early lithium producers who need to prove they can get up and running. And beyond those, there are unconventional new sources like lepidolite – a lithium-bearing mineral that is emerging in China as a serious option. one of the threats.”

However, this is also a controversial topic, with some experts saying that converting in bulk for battery use is expensive and harmful to the environment.

“By 2023, more lepidolite will be available online in China,” said Benchmark Mineral Intelligence analyst Cameron Perks. No. In five or 10 years, it will become an increasingly important part of the market.”

All of this means that the path to supply and cost reduction for automakers is difficult, even before considering the demand side of the ledger.

No collapse

For now, the withdrawal of China’s EV credits and uncertainty about the pandemic and the global economy weigh heavily on the outlook. But a faster-than-expected reopening of the Chinese economy and the rest of the world escaping a deep recession could bring upside surprises.

“The market consensus and the consensus I agree with is that prices are likely to level out in 2023, possibly with some downside, but we never see a price collapse.” said Berry of House Mountain Partners.

(Updates to add quote from Global Lithium in 12th paragraph)

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