Metals and Mining - Lithium
SECTION 1: LITHIUM OVERVIEW
BUSINESS SENSE ABSTRACT
With a global market value of USD 8.3 billion as of 2023, lithium is considered “white gold” for the ongoing clean energy transition due to its usage in rechargeable batteries for electric vehicles and electronic devices. Driven by increased demand from the energy transition, global lithium production is expected grow by CAGR of 13.9% to 512.9 kilotons by 2030 with Australia and Argentina as major contributors to this growth. China, on the other hand, controls over 55% of the global processing of battery-grade lithium which upon processing is shipped overseas to make battery components. In December 2023, lithium carbonate prices dipped below CNY 100’000 per ton—its lowest since August 2021.
SIGNIFICANCE
Without lithium, rechargeable batteries that power our electronic devices and electric vehicles would be impossible. In addition, lithium batteries play a crucial role in storing energy generated by renewable energy sources like solar and wind. As such, with the growing demand for electric vehicles and renewable energy storage solutions, the significance of lithium has amplified, leading to a focus on lithium mining and exploration globally.
Without lithium, rechargeable batteries that power our electronic devices and electric vehicles would be impossible.
CASE STUDY TOPICS
Case study topics for lithium can range from market analysis and demand forecasting to supply chain optimization. In particular, you may be asked to assess the current and future demand for lithium considering the energy transition; analyze market trends, price fluctuations, and potential disruptions; evaluate the global lithium supply chain, from mining and processing to battery production, to improve efficiency or vertically integrate; conduct an environmental and ethical impact assessments of lithium mining operations to improve sustainability; work on mergers, acquisitions, and investment cases of lithium mining companies or projects; analyze the changing regulatory frameworks for lithium mining.
KEY TRENDS & EVENTS
“Lithium-rush”: The auction for a lithium mine—the Jiada Lithium Mine—in China’s southwestern Sichuan province closed at around USD 580 million which is 1300 times higher than the starting price. Similarly, another auction for the Lijiagoubei Lithium Mine in Sichuan closed at 1700 times the opening bid.
Resource nationalism: As the strategic importance of lithium soars, the polarized international order is leading to resource nationalism. For example, in July 2023, Australia blocked the sale of a lithium miner to a US company whose Australian subsidiary had a director with Chinese citizenship. Furthermore, in 2022, due to national security concerns over critical minerals, Canada ordered three Chinese companies to divest from Canadian companies mining critical minerals.
The Critical Raw Materials Act of the EU: the EU is currently developing the Critical Raw Materials Act to establish a sustainable critical minerals value chain. It aims to ensure that processing takes place within Europe while diversifying pre-processing facilities across multiple regions and countries. This can further contribute to the already regionalizing / nationalizing supply chain dynamics of lithium.
INFLUENCES AND HEADWINDS
Electric vehicles demand in China: In 2021, the 35% month-on-month rise in EV registration in China drove up the demand for lithium, leading to a 437% increase in profits for the Chinese battery producer Gangfeng Lithium Co. (which had signed a battery supply deal with Tesla). However, while lithium prices peaked in December 2023 when China’s policy for subsidizing new purchases of EVs ended, lithium prices remained relatively sluggish in 2023 at large due to slowed global economic growth.
Political pressure: Bolivia, Argentina, and Chile (which make the “South America Triangle”) with Mexico account for 60% of global lithium deposits. Political changes in these countries are sure to have significant impacts on lithium. For example, Chile’s President Gabriel Boric and Mexico’s President Andrés Manuel López Obrador both seek to increase government control over lithium mining, planning to establish national lithium mining companies in their respective countries. This could be a concerning political change for foreign companies mining or planning to mine lithium in the South America Triangle.
Lithium inventory: As the demand for EVs nosedived in 2023, a large surplus of lithium was created with current inventory surpassing demand. However, S&P predicts that as the surplus narrows from 2024 to 2027, lithium prices could stabilize around $20000/mt to $25000/mt which is above pre-2020 levels.
CASE STUDY
North America Bets on Domestic Lithium Production
Industrial onshoring trends post-pandemic and geopolitical tensions have led the US and Canada to internalize the lithium supply chain and invest in domestic facilities. In 2024, new lithium facilities are planned to be built in California, Tennessee, Arkansas, Texas, South Carolina, Nevada, and Canada’s Quebec. These include mining sites and geothermal and processing facilities. The discovery of lithium in the extinct volcano McDermitt Caldera along the Nevada-Oregon border could be a game-changer for North America’s lithium production change. Scientists have recently estimated that it could contain over 132 million tons of lithium (which could be the largest amount of lithium in the world)—enough to meet lithium demand for decades.
SECTION 2: LITHIUM INDUSTRY FINANCIALS & METRICS
REVENUE DRIVERS
Lithium battery value chain consists of several key stages where revenue is generated.
Lithium production
Mining and extraction: In this stage, mining companies can generate revenue by selling mined lithium-containing minerals and / or by-products.
Processing and refining: Either as a vertically integrated or separate entity, processing facilities generate revenue from selling refined lithium compounds to battery materials production company.
Lithium battery production
Battery cells manufacturing: Upon purchasing refined lithium compounds, battery manufacturers make battery cell which is the smallest building block of a lithium-ion battery; it can be sold to battery pack assembly companies.
Battery pack assembly: If separate form battery cells manufacturing, battery pack assembly companies will assemble the cell with battery management system (BMS), housing, and cooling system to sell as a final battery pack which can be placed in electronic vehicles and devices.
Lithium batteries can be sold and generate revenue across multiple industries for battery manufacturers
Electric vehicles (EVs)
Consumer electronics
Renewable energy storage
Aerospace and defense
Medical equipment
Electric grid and infrastructure
and more.
COST DRIVERS (for mining companies to extract / price influences)
Mining method: brine extraction from salt flats tends to have lower costs compared to hard rock mining.
Lithium concentration: higher lithium concentrations generally lead to more cost-effective extraction.
Energy costs: evaporation ponds for brine extraction and mineral processing for hard rock mining contribute to increasing costs.
Production costs and infrastructure: the overall production costs, including extraction, processing, and transportation as well as mine site infrastructure can all drive up the costs for mining companies.
KEY TERMINOLOGIES & METRICS
Upstream: activities related to the exploration, mining, and extraction of lithium resources. Companies involved in upstream are often engaged in raw material production.
Downstream: activities involved in the processing, manufacturing, and distribution of lithium products, including battery components and finished products like electric vehicles.
Integrated producer: a company involved in multiple stages of the lithium supply chain, often engaged in both upstream and downstream activities.
Offtake agreement: a contractual agreement where a buyer commits to purchasing a specified quantity of lithium or lithium related products from a producer.
Battery Gigafactory: a large-scale manufacturing facility focused on producing high volumes of lithium-ion batteries and battery packs, often associated with electric vehicle production.
Off-grid solutions: the use of lithium batteries for providing power in remote or off-grid locations, such as standalone renewable energy systems.
Battery as a Service (BaaS): a business model where customers pay for access to battery storage solutions rather than owning the battery outright.
Lithium ETF (Exchange-traded fund): a financial product that tracks the performance of a basket of lithium-related stocks or commodities, allowing investors to gain exposure to the lithium sector.
SECTION 3: LITHIUM INDUSTRY P&L REVIEW
Disclaimer: The contents of the following report are provided solely for reference purposes and should not be construed as providing any form of advice or recommendation. This report is not intended to substitute or replace any official documentation. For comprehensive and authoritative information, it is recommended that you consult the official reports issued by the respective companies.
Albemarle Corporations and Subsidiaries | Consolidated Statements of Income | P&L REVIEW
Source: Albemarle 2022 Annual Report
Source: Albemarle 2022 Annual Report
Lithium Segment Results
Source: Albemarle 2022 Annual Report
P&L Review questions for the reader:
Can you derive any correlation between the change in the global lithium market and the Albemarle 2022 lithium segment results?
What conclusions can be drawn from the Albemarle 2022 financial results in light of the lithium industry updates in the vertical report?
SECTION 4: VIDEO REFERENCES
For your further understanding of the global coal industry, we recommend the following videos:
How the U.S. Is Investing Billions to Compete With China’s Lithium Supply Chain | WSJ U.S. vs. China
Inside the global race for lithium batteries | Financial Times Film
