Lithium squeeze to drive higher prices as EV sales hit fast lane

A shortage of the battery raw material lithium needed to supply the world’s switch from combustion engines to electric cars is on course to prolong last year’s stunning price rally, lifting the outlook for miners of the sought-after mineral across Australia.

As the era of electric vehicles (EVs) begins to accelerate, carmakers worldwide have been racing to lock in reliable supplies of lithium-ion battery raw ingredients including lithium, nickel and cobalt, which are urgently required to roll out more EVs but are failing to keep up with ballooning demand.

The supply crunch sparked a stunning rally last year in prices for lithium, one of the key building blocks for EV batteries. Cargoes of hard-rock lithium concentrate known as spodumene sent from Australia averaged about $US400 a tonne in 2020 and are fetching $US2000 today.

A one-off cargo sold at auction by ASX-listed miner Pilbara Minerals in the September quarter sold for a staggering $US2240 a tonne.

Analysts have now begun updating their forecasts on the assumption that market tightness is likely to persist well into 2022 and the rally could have further to run.

“Sector fundamentals remain strong with spot spodumene prices set to increase significantly this quarter and contract prices still playing catch-up,” said Bank of America analyst Jack Gabb, who predicts one-off spot prices could rise as high as $US3900 a tonne at Pilbara Minerals’ next auction.

Bank of America last week lifted its share price targets for a number of ASX-listed lithium producers including Allkem (16 per cent higher), Pilbara Minerals (13 per cent) and IGO (3 per cent).

While lithium prices fell sharply in 2018 as a rush of new supply projects collided with a slowdown in EV sales, optimism about the EV revolution has since returned. EV uptake has been building strongly in key markets of the US, Europe and China and carmakers are expanding their electric vehicle lines. Governments are setting deadlines to phase out combustion-engine vehicles and unleashing stimulus packages targeting transport electrification, while investors are betting that EVs will account for 40 per cent of new vehicle sales by 2030.

Australia is the world’s biggest producer of lithium and accounts for an estimated 30 per cent of known resources. Most lithium in Australia, however, is exported as spodumene concentrate, rather than refined battery-ready material.

Lithium producers across Australia and worldwide are scurrying to increase capacity — reopening mothballed mines and developing new projects — driving an estimated 36 per cent increase in lithium supply in 2022, according to Bank of America.

However, the increase will be insufficient to keep pace with near-term demand. “Hence, we expect spot pricing to remain elevated,” Mr Gabb said.

Morgan Stanley analyst Rachel Zhang said lithium supply tightness was expected to remain during the first half of 2022 before some “loosening” was possible in the second half as new supply came to market. “That said, considering normally better lithium consumption in the second half, tight market balance is still likely then,” she said.

Despite the need for more lithium mines to electrify the transport sector, which presently accounts for about one-fifth of planet-heating greenhouse gas emissions globally, community opposition to new mines built amid concerns about environmental damage could constrain supply even further.

Rio Tinto, Australia’s second-biggest mining company, has been facing an intensifying backlash against its plan to develop the $US2.4 billion ($3.3 billion) Jadar lithium mine in western Serbia. Last month, campaigners filled Belgrade’s streets in protest, leading to local authorities suspending an allocation of land for the project.


Extracted from The Sydney Morning Herald