The Lithium market, upcoming tensions

Global - Nov 16 2018

In the context of the transformation of the automotive sector in response to the challenges of climate change, fossil fuels could be gradually giving way to electricity.

The electric vehicle could represent between 35% and 50% of sales in 2040 according to Bloomberg and the IAE. As a result, the evolution of lithium consumption follows the same trends as the electric vehicle penetration. The total demand for lithium by 2050 is therefore estimated at just over 14 million tons according to a recent study by ADEME and IFPen.

However, according to the USGS, global reserves are currently estimated at about 14 million and total resources at 47 million tons. The margin between future lithium demand and current reserves is therefore currently quite small if ambitious CO2 emission reduction targets are set, but there is no immediate geological criticality for lithium.

Figure: Market shares early 2017 for primary lithium production

However, this does not hide different forms of vulnerabilities that could lead to severe market tensions by 2050. Indeed, according to the recent ADEME and IFPen report, there may already be risks related to the market structure and its potential evolution. As shown in the graph here, the lithium market is currently dominated by a small number of companies (Albemarle, SQM, FMC, Tianqi, Ganfeng), plus a few challengers (Orocobre, Galaxy Resources, Bikita). This concentration of players leads to a high degree of uncertainty about future lithium prices. In addition, the lithium market remains exposed to some notable price volatility risks as, for example, management instruments are not yet available on commodity exchanges (LMEs). Price volatility could thus weaken some small players and lead to even further consolidation between players.

Other factors like the evolution of China’s trade policy, a key player in the lithium market, or the national strategies of the lithium triangle (Chile, Bolivia, Argentina) could be additional constraints. However, this should not lead us to forget the risks we would also face if we do not decarbonize our means of transport.

Félix Fouret, Carbon/Climate Analyst - Sources: Beyond Ratings, ADEME, INFep, Actu Environnement

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