Who Controls Lithium?
The world has plenty of lithium. However, our ability to quickly and efficiently extract lithium will not be sufficient for the mass electrification of our fossil fuel economy. Lithium reserves are also relatively concentrated in certain geographies. Could new ‘electro-states’ emerge as the petrostates decline?
As investors looking at a lot of energy opportunities, we have seen a tsunami of battery companies over the past 12–18 months as the inevitable transition to electric vehicles accelerates and industry players try to catch up to the $1T behemoth, Tesla.
While parsing through all these opportunities, lithium as a base material stood out as a core component to most battery architectures. We decided to investigate what exactly will happen to the lithium market as electrification takes off.
First off, the issue is not the amount of lithium in the world. We have plenty of lithium reserves that will sustain us for the foreseeable future even with increased lithium demand. The problem (and opportunity!) is that we will not be able to extract it quickly enough in an environmentally friendly way without spiking prices and impacting mass-market adoption.
GEOGRAPHY
Lithium reserves are fairly concentrated globally with major reserves in South America and Australia. Below is a table outlining current mine production and mine reserves.
Although Chile has the largest concentration of mine reserves, Australia is currently the largest producer of lithium globally, mining almost half of all lithium in 2020.¹ This is in large part due to the type of lithium extraction prevalent in each region. Australia has large concentrations of lithium that can be directly mined. Five of the world’s ten largest lithium mines are in Australia (Wodigina, Pilgangoora Lithium-Tantalum Lithoum, Early Grey, Greenbushes, and Altura’s Pilgangoora).
Of note, lithium production has been decreasing over the past three years. Lithium production has exceeded consumption in the past several years and lithium prices have also slumped. This price slump led to several mines decreasing production, pausing expansion plans and some even closing altogether (Canada closed its lithium mine). Global consumption of lithium in 2020 was estimated to have been flat from 2019 at 56,000 tons, mostly due to the COVID-19 pandemic. Lithium demand rebounded in the second half of 2020 owing to strong demand for lithium-ion batteries. Still, lithium consumption has trailed expectations set in the mid-2010s due to scaled-back subsidies from China on electric vehicles, consumers reducing lithium inventories, and lower electric vehicle sales than anticipated.
We believe this current supply glut is temporary. Lithium producers assumed that electrification would occur faster and understandably did not foresee the global pandemic. The current glut and low lithium prices will likely correct themselves in the next few years and may even exacerbate a future lithium shortage because lithium mining projects are currently in the red due to commodity prices. We have not been increasing our capacity for the past few years.
RESERVES AND RESOURCES
However, we have increased our known reserves.
From 2019 to 2020 we increased our known mining reserves by 23%. Of note, the table above comprises Mining Reserves that can at present be economically mined. Our known global lithium Resource (overall reserves) is much larger. The table below outlines our overall reserves in the top 6 countries.
To put this into perspective, if we maintained our current rate of production, we could mine lithium for 787 years! This assumes that we can figure out how to efficiently extract the lithium from all these reserves. For example, Bolivia currently produces a negligible amount of lithium, and production in Chile and Argentina is a fraction of what they could produce.
Another thing to highlight is the concentration of lithium deposits globally. Of the top six countries with the most lithium reserves, 72% of those collective reserves are in South America. Even when measuring existing mining reserves, South America has more than 50% in Chile and Argentina alone. In general, the South America region (Chile, Brazil, Peru, Argentina, and Bolivia) has a key strategic advantage in not just lithium but copper, iron ore, silver, aluminum, nickel, manganese, and zinc — many of the metals needed for key clean energy technologies (batteries, electronics, wind turbines).
However, this strategic advantage may not materialize depending on how the value chain evolves. For example, the traditional petrostate was able to create enormous value by using the OPEC cartel to control supply and pricing. But the oil market value centered around crude oil that was shipped around the globe and refined more locally. This may not be the case with lithium. Below is a table of average lithium carbonate prices from 2010 to 2020. Lithium prices have fallen from a peak in 2017 of $17K per ton to $8k per ton in 2020.
Average Lithium Carbonate Price from 2010–2020 in U.S. Dollars per Metric Ton
The rapid fall in lithium prices forced miners to cut back on operations and pause the exploration of new mines. Smaller mining operations in Australia and Canada simply stopped production. Unlike in the oil market, there is no cartel for lithium that is adjusting supply to keep prices stable. This may evolve over time, but first, demand has to reach and surpass current production.
While lithium production and pricing has suffered, China has emerged as the main contender to capture the value of the lithium-ion battery supply chain. According to BloombergNEF, China controls 80% of the world’s raw material refining, 77% of the world’s cell capacity, and 60% of the world’s component manufacturing. Lithium is not refined into batteries locally like crude oil is refined into gasoline. A large proportion of the world’s lithium makes its way to China to be processed, allowing China to capture the “refining” value in the supply chain. Australia in particular, the world’s largest miner of lithium (almost 50% in 2020), almost exclusively ships its lithium to China.
From a geopolitical perspective, China seems to be controlling lithium today. However, the holders of raw lithium could emerge as powerful players as future “electrostates” if they are able to control supply through cartelizing and investing in technologies that better allow them to serendipitously turn their mines off and on with less economic impact.
MINES AND COMPANIES
Countries generally do not mine their own lithium. Some countries grant the rights to extract lithium to private companies, while in others (like the US), mineral rights may belong to private landowners or be leased if on public land. Still, lithium extraction is very concentrated. According to the latest United States Geological Survey: “Five mineral operations in Australia, two brine operations each in Argentina and Chile, and two brine and one mineral operation in China accounted for the majority of world lithium production.” 12 mines accounted for the majority of global lithium mining.
Below is an overview of the 10 largest lithium mines in the world. Note that many of these are not fully operational and these are mines — the list does not include brine water operations.
Many of these mines, as well as brine operations, are owned by large, multi-billion dollar publicly traded companies. Below is a list of the ten largest lithium-producing companies in the world based on market capitalization. Note that many of the companies, especially the Chinese ones, are vertically integrated.
Vertically integrated companies have been trading well over the past year. For example, Ganfeng Lithium has seen its stock value increase 4x in the last 12 months.
In contrast, Sociedad Química y Minera de Chile (SQM) has traded up in the past months but is down from its peak in 2018 when the price of lithium also peaked.
CONCLUSION
We created too much capacity in the mid-2010s, causing prices to fall dramatically. It is easy to buy lithium. However, this has also led to stagnation in development. China controls the bulk of the lithium refining and processing capacity. If projections for lithium demand hold, we will quickly need to significantly increase capacity VERY quickly. The below table shows base, probable, and possible lithium supply VS lithium demand.
Even if we believe in the more aggressive supply forecast, demand will outstrip capacity by 2027. According to Glyn Lawcock, Global Head of Mining Research at UBS, “There is not sufficient supply to meet this demand projection based on our knowledge of known projects today. That includes all projects whether they are under construction, in feasibility or still in exploration.” In order to continue electrifying our economy, we need more lithium production, and we need it soon.
In the end, lithium is plentiful but concentrated in a few countries. Once demand catches up to supply, power may very well shift to those lithium-rich countries who hold the key to global electrification. But before Bolivia, Chile, and Argentina can ascend, we need a clean way to extract more lithium, faster.
References:
- World Bank Group, June 2017, ”The Growing Role of Minerals and Metals for a Low Carbon Future,” accessed July 2021. (Also a good ref for wind turbine technology)
- United States Geological Survey, Lithium Data Sheet — Mineral Commodity Summaries 2020.
- United States Geological Survey, Lithium Data Sheet — Mineral Commodity Summaries 2021.
- Bloomberg. “China dominates the Lithium-ion Battery Supply Chain, but Europe is on the rise”
- NS Energy. “Top six countries with the largest lithium reserves in the world”
- The Economist. “Petrostate vs Electrostate, What is means to dominate the world of energy is changing,. To China’s advantage.”
