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As everyone here likely knows, the demand for lithium is going to be quite high and in a serious supply crunch moving forward. The IEA estimates for the demand for lithium in the future is staggering. To reach the goals laid out by governments around the world and to reach a “sustainable development scenario,” the amount of lithium would need to 48x from 2020 levels. Just to reach the stated 2030 goals which seem ambitious, it is a 7.5x increase.
IEA
The projected demand for lithium vs the available mines plus planned new production paints a stark picture for the prospects of these goals and interesting prospects in terms of price. I aim in this article to lay out what goes into mining and preparing lithium for use in lithium-ion batteries (LIB) and examine significant points to consider.
Mining
Most of the worlds lithium comes from three regions; Australia, South America, and China. There are major differences in how lithium is extracted based on the geographic location.
Australia and China get lithium from spodumene, lepidolite, or other lithium bearing ores. Once the ore is dug, it is first put through a process using physical separation techniques. Next, the separated compounds are thermally treated with liquid solutions of varying types in order to create the desired lithium compounds. Since ores contain more than just lithium, purification steps take place through precipitation of impurities, ion exchange, and evaporation. Finally, crystallization of the desired lithium carbonate or hydroxide products is performed.
For years, South America was the predominant producer of lithium and still plays one of the largest roles in the industry. In contrast to ore mining, South American lithium comes from salar lake mines. This is where the famous images of the large ponds of varying colors come from. Liquid brine is extracted from reserves underneath the large salt flats and transferred into a series of evaporations ponds. At each stage, various other compounds are precipitated out of the liquid solution leaving ever more concentrated lithium solutions. Fun fact, potash (potassium containing compound) is a byproduct of this lithium extraction process and is an important fertilizer in agricultural use. This and other byproducts can also be economical to extract and sell in addition to lithium. Then, techniques like ion exchange, carbonation, and crystallization are used to isolate purified lithium compounds.
Other techniques include extraction from clay ores, different extraction methods, ocean water, geothermal brines, and recycled LIBs.
Market Implications
Is it possible to get lithium salt water from ocean? This comes back to reserves vs resources that I discussed recently in The Everything Shortage. Other technologies for extracting lithium become more favorable as the price increases. Higher demand increases prices with a constant supply, but then companies look to bring on more production to take advantage of higher prices, which in turn brings the prices back down. These market dynamics are determined on the demand side by electric vehicles, stationary storage, and other LIB devices. On the supply side, simply the cost of extraction/refining is the limiting factor. Things to consider are extraction technique, ore quality/quantity, geographic location (shipping cost/weather/etc.), political stability, and government regulation.
In general there is competition between mining techniques to drive cost down with profit as the motive. As the price of lithium increases due to higher demand or consumption of traditional reserves occurs, other extraction techniques become viable as profit margins emerge. Like other industries have seen, it would not be far fetched to see governments subsidizing lithium mining operations. While lowering costs to consumers at least in the short term, this would likely just drive up the cost of lithium (paid for by governments), and stifle innovation for other extraction techniques not within favor of the subsidies.
As long as the appetite for electric vehicles, stationary storage, and personal devices continues, it may provide interesting investment opportunities in the lithium space as supply is fairly inelastic. Things that could hinder the price appreciation of lithium are less demand for EVs/stationary storage using LIBs, development of a new and more cost effective way of extracting and refining lithium, or a large new supply coming online. While it is possible to see wiggle room in these areas (i.e. changing political landscape, new techniques developing, and recycling/new mines operating), it is difficult to foresee huge breakthroughs in any of these areas that would significantly suppress the price of lithium for an extended period of time.
The challenges facing the new mines moving forward would most importantly be restrictions/regulations by governments. For example, the United States and Bolivia both have political environments that discourage lithium mining domestically regardless of enticing available reserves. More environmentally friendly techniques could encourage the extraction of new lithium reserves around the world, especially in regions with higher regulations. This is dependent however on the price of lithium being high enough to absorb whatever additional cost, if any, there is to these new methods. The problem is that the cure for high prices is high prices. If the supply crunch for lithium and other battery materials is too strong it could reduce the demand for costly batteries, EVs, and stationary storage. There is a line between people and companies giving up on battery plans due to cost and the prices being high enough to allow other mines to come online economically.
Although not certain, in my estimation, higher lithium prices to come have enormous implications to battery producers, automakers, investors, average people, etc. With the major nations ambitious 2030/2050 decarbonization targets, lithium is a hot commodity for years to come. The US and others have shown their willingness to not only lay the energy transition framework, but also fund it. Recent policies like the infrastructure bill, defense production act, and inflation reduction act have sections that influence demand for batteries and therefore lithium mining. Leaving aside the potential effectiveness of these policies across various metrics, this leaves a steady and foreseeable demand for lithium in the future for a fairly limited natural resource. Lithium, the new gold.
