Unlike cobalt, the future of lithium is not at all clear. Demand continues to increase, largely driven by electric vehicles, but so does supply. Consequently 2018 was a bad year for lithium stocks. Most peaked in the first half of the calendar year and it has largely been downhill since.

Lithium is derived from two sources; brines and hard rock, the latter being in the form of spodumene found in pegmatites. Lithium production is often measured as lithium carbonate equivalent (“LCE”). Most growth in production is coming from spodumene.

The production of spodumene concentrate, 5-6% lithium, as LCE was 59,450 tpa in 2016, increasing over 300% to 191,050 tpa in 2018. Whereas brine production as LCE was 125,893 tpa in 2016, increasing to 186,700 tpa in 2018.

The increase in spodumene production, a more expensive process than brine, was largely driven by the price increase since 2015. Lithium carbonate (<99.5% Li2CO3) today sells for USD12,500 to 14,400 per tonne. This is down from over USD15,000 in early 2018 but much higher than the 2015 price of USD6,500 per tonne.

So, we have rapidly increasing demand, accompanied by rapidly increasing supply. There are two schools of thought regarding future prices: either demand will increase at a much greater rate than supply can be developed, or supply will keep up with demand. The former leading to a rising price, the latter to a flat or declining price.

It should be noted that the price cannot decline too far as if it gets close to the cost of spodumene concentrate production new developments will be halted.  Typical spodumene concentrate costs are thought to be around USD3-400/t of concentrate. Spodumene concentrate is currently selling for USD600 – 750/t.

Lithium is one of the more common elements in the Earth’s crust. The United States Geological Survey estimates that world reserves are 16Mt and resources are around 50Mt. Compare this with production of 43,000t in 2017.

Conclusion

The uptake of electric cars will be a major influence on the lithium price in the years ahead. At present, outside of China, the uptake is insignificant. There are many reasons for this, such as cost, charging time and range. With regards to the latter, this is severely reduced in cold or hot weather.

Should this lack if interest continue, the lithium price is likely to drift down. However, should governments mandate electric vehicle use, then the price will hold up reasonably well. However, significant increases from here are unlikely.

20 February 2019 Commodities