Commodity Focus: Lithium

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 09 Feb 2017   Posted by admin


Image: Tesla.

By Cameron Drummond

ONE of the best performing commodities of 2016 was undoubtedly lithium, burgeoned by Tesla Motor’s construction of a lithium-ion battery gigafactory in the Nevada desert, which it fired up in the first week of this year.

Tesla, partnering with Japanese electronics company Panasonic, predicts that the factory will be producing 35 gigawatts (GW) of lithium-ion batteries each year by 2018 for use in electric vehicles (EV’s) and energy storage systems – double the rest of the world’s current production rate.

Lithium has a range of commercial and industrial uses, such as the manufacture of glassware and ceramics; though by far the fastest growing application is for batteries.

Technological advancements in battery-making had seen the spot Chinese lithium price more than triple from $US6500 per tonne (t) in 2011, to about $US21,500/t by mid-2016.

Lithium had also been labelled “the new gasoline” by investment house Goldman Sachs, and Macquarie Research estimating lithium demand had exceeded supply during 2016, expecting the trend to continue this year.

China told its automakers back in November that EV’s would have to account for 8 per cent of total car production.

In 2016, China produced 351,000 passenger EV’s and 156,000 commercial EV’s, an 85 per cent increase from the previous year.

These factors have caused a boom in Australian lithium exploration as mining companies scrambled around the WA outback in an effort to ride the wave of investor interest and demand for the commodity.

In the last two years WA-focused lithium companies such as Pilbara Minerals, Altura Mining, Kidman Resources and Neometals have transformed from penny stocks to mid-tier companies with market valuations near and above $300m; and by mid-2016 as many as 30 ASX-listed companies had lithium in their sights – about 15 more than by the end of 2014.

However some analysts believe lithium is heading toward over-supply issues before many of these miners get into production.

Deloitte Access Economics director Luke McFadyen said that at a high level, lithium today has all the characteristics of a classic commodity bubble, and isn’t as rare as it is made out to be.

“According to the US Geological Survey (USGS), world lithium reserves are about 14 million tonnes, versus an annual production of about 32,500t; implying that, at the current production rate, the reserves of lithium will last 431 years,” Mr McFadyen said.

To put this in perspective, the USGS showed that copper had a reserve life of 39 years, zinc 15 years, gold 19 years and iron ore 56 years.

“There are currently 35 Lithium projects under development around the world and total lithium mine capacity should increase by about 70 per cent by 2025,” Mr McFadyen said.

“The capacity for mineral conversion could also more than double over the same period due to improvement in processing technology.

Mr McFadyen also believed that although Australia is currently the world’s top lithium producer; China, Chile and Argentina all have equal or better resources than Australia and were progressing them at a faster rate.

“The competition from Chinese production is set to become even more significant and is moving faster to market than Australian producers: there are currently five operating projects, two committed projects, three probable projects and two possible projects in China,” he said.

“The demand for lithium from Tesla is significant but Elon Musk, Tesla’s founder, has been explicit in his desire to source lithium from local USA producers only.

“There are currently five projects underway in Nevada (where Tesla’s gigafactory is being built) to supply Tesla with the lithium they need, none will come from Australia.

“WA’s economy unfortunately won’t be saved by a few small lithium explorers with a half decent resource and a nice presentation in hand.”

There seems to be no doubt that lithium will have a growing use for technology in the near future, however it remains to be seen whether Australian miners will be able to take advantage of global demand in time.