The price of lithium has finally broken its all-time high price to reach over 500,000 yuan on Friday, or $71,315 per ton.
Breaking what many considered a barrier of 500,000 yuan raises questions about just how high lithium prices could go, considering ever increasing demand for lithium-ion batteries as EV manufacturing ramps up.
Batteries are already the main cost inhibitor for most EV manufacturers, with many fearing that further increases in commodity prices could prevent manufacturers from lowering car prices, which would allow them to sell in budget markets and accelerate the EV transition.
But lithium isn’t the only material used in battery manufacturing, a number of other minerals are integral to the manufacturing of different cell chemistries.
Let’s look at the different minerals needed to produce both NMC and LFP cathodes, since these are dominant within EV manufacturing. Lithium is one of the common factors between both dominant chemistries, but pricing is difficult to measure since it is sold in multiple ways. Spot prices, long-term supply contracts and auctions through exchanges are all used when trading lithium. These complicate price measurement and make it difficult to say for certain what the price is at a given point in time. Thankfully long-term price recordings are quite robust.
We can comfortably say that lithium prices exploded in mid to late 2021 on the back of surging demand from China, year over year prices indicate an over 200% increase in price compared with September of last year. China imports a vast majority of the world’s raw lithium to process for domestic usage in battery production.
At Rethink we expect lithium prices to continue climbing due to increasing EV demand, largely due to the major disconnects between setting up lithium extraction, lithium processing facilities, and EV demand. Mines can take upwards of 5 to 7 years to set up while a lithium processing plant can take just 2, all while EV demand is increasing rapidly globally.
Unless permitting for extraction is heavily accelerated, lithium prices will be further inflated as EV demand increases battery demand without enough lithium to go around, while extraction projects get stuck in planning hell.
NMC batteries use a combination of nickel, manganese and cobalt as the components within the cathode, all of which have some drawbacks.
Cobalt is probably the most well-known by those following ethical resource extraction issues. Around 70% of cobalt exports come from the Democratic Republic of the Congo (DRC) where artisanal mining has led to verified reports of child labor and deaths associated with the extraction of the mineral. This has led to the creation of the Fair Cobalt Alliance (FCA) to ensure the ethical extraction of the mineral.
It has also led to companies making investments to reduce their reliance on cobalt within their manufacturing processes, Tesla’s Elon Musk has famously been quite outspoken on reducing cobalt usage. Cobalt currently trades at around $52,000/ton, so not only does it carry some serious reputational and compliance risks, it’s also quite expensive.
Nickel ore is primarily produced within Indonesia and the Philippines, where since Indonesia’s ban on nickel exports, the Philippines is now technically the largest exporter. According to the OEC, in 2020 70% of all nickel ore was imported by China, amounting to $2.3 billion in imports for refining and domestic manufacturing purposes. Nickel is currently being traded at around $25,000 a ton.
Unlike cobalt, nickel reserves are spread globally, with significant reserves existing on most continents. Australia has an estimated 20 million tons of reserves and Brazil has 16 million.
While we still expect the price to increase as EV demand ramps up, increasing nickel production is a comparatively easy feat relative to lithium due to the simpler manufacturing processes, and as such we don’t see price taking a similar trajectory.
Manganese is the 12th most abundant mineral in the world and is the 4th most common metal by tonnage after iron, copper, and aluminum. Manganese is incredibly cheap due to its abundance, and in the grand scheme of battery materials shouldn’t be a problem due to the availability of different sources to acquire from. The current largest exporters are South Africa and Gabon, making up over 60% of global exports in 2020. China also imported roughly 66% of the world’s supply in the same year.
LFP batteries, or LiFePo4, use far more abundant minerals in their production. Both iron and phosphate are considerably more widely available and cheaper than nickel and cobalt, leading to significant cost reductions in comparison to NMC batteries.
Iron ore currently trades at $100 a ton and Moroccan phosphate rock trades at $320 a ton.
The main drawback in the past to LFP batteries was energy density, but this is being addressed by innovations in design that are bringing them upwards, not to parity with NMC batteries but keeping pace at about 60% of NMC energy density, and growing.
Either countries will attempt to address the situation by accelerating the approval process for new extraction projects, or cell chemistries that circumvent lithium as a feedstock will become feasible.
The opportunity to break into this market will be highly dependent on the sustained high price of lithium, but as supply issues are addressed through new extraction projects, that opportunity will weaken.