The revisions to previous forecasts in the September Resources and Energy Quarterly this week from the Federal Department of Industry told the story about the gathering boom in lithium – the updates were substantial and could very well rise again in the next couple of quarters.
The Quarterly said forecast export revenue for lithium over the next two years “has been revised up substantially.”
“Total supply from mine and brine operations is currently insufficient to meet demand. While new lithium projects are being developed, the supply gap will take time to close,’ the Quarterly noted.
“Stockpile size is hard to ascertain, with some estimates of 4-8 weeks for spodumene. Ongoing tight supply conditions are forcing lithium processors and battery makers to pay record prices.
“This reflects sustained record prices, faster than expected pass-through of spot prices to contract prices and new Australian production and trade data,” the Quarterly said.
So that saw export revenue in 2021–22 revised up from $4.1 billion in the June Quarterly to $4.9 billion. “Further out, 2022–23 has been lifted from $7.8 billion to $13.8 billion, and 2023–24 from $9.4 billion to $12.9 billion.”
As a result, it’s no wonder the September Quarterly predicted that “Lithium set to become a $10 billion-plus export industry within a year.”
Which will see lithium take more than 30% of the $33 billion in export revenues for metals central to the global energy transition such as copper, nickel (and lithium) in 2022-203.
The driver for the better-than-expected surge in lithium production, prices and exports is well known – the gathering pace of demand and production of electric vehicles (EVs) and to a lesser extent plug ins and hybrids.
But as the monthly sales data from China confirms, the overwhelming share of NEV (New Energy Vehicle) sales is for BEVs (Battery Electric Vehicles) and not the hybrids that Toyota is persisting with and lobbying here and globally to get the same tax treatment as EVs.
Global sales of all types of EVs increased 36% in the year to June 2022 compared with the same period in 2021 — with Chinese sales up 110%, European sales up 6%, and North American sales up 27%, the latest data from the Quarterly shows.
In China, total EV sales have averaged almost half a million vehicles a month so far in 2022, reaching a peak of 650 thousand vehicles in June.
Overall, auto production and supply chains in China have now largely recovered from the COVID lockdowns, when EV sales fell to just over 300 thousand vehicles in April 2022 (when Covid lockdowns, mostly in Shanghai saw the tesla and BYD car plants in that city closed).
“EV and EV battery manufacturing is currently dominated by China. With many nations looking to reduce their reliance on Chinese (and Russian) supply chains, Australia’s resource exports are likely to become more diversified over the long term, the Quarterly forecast.
The US IRA legislation will drive that to a large degree. The Quarterly explains how (as we have done previously):
“Under the Act, a new EV will only be eligible for tax credits when at least 40% of the battery’s critical minerals are extracted or processed from: the US, a free trade agreement partner such as Australia, or recycled in North America.
“This content requirement applies only to the minerals in the batteries, rather than the entire EV, and includes minerals such as lithium, nickel, cobalt and graphite.
“The content requirements increase progressively over time, reaching 100% by 2029. From 2024 onwards, the Act also stipulates that eligibility for the tax credits also depends on battery minerals or components not being sourced from ‘foreign entities of concern’. “
That is a major plus for Australia and Australian producers in countries like Chile, Mexico and Canada which have free trade agreements with the US. Argentina doesn’t and that is going to be a big bear for some groups like Allkem and Rio Tinto until they can sort out supply lines and processing options.
Rio Tinto’s trial lithium hydroxide plant in Quebec makes sense – not only for processing Canadian lithium ores, but taking output from its planned $US1 billion plus operation in Argentina.
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By any measurement the boom in lithium continues – that’s despite half-hearted attempts by some silly analysts (think Goldman Sachs in June) to claim otherwise.
The story is in the numbers.
The Quarterly sets out the higher parameters for the Australian lithium industry’s performance over the next two years.
Lithium is on track to become the Australia’s fifth-most valuable export commodity, surpassing beef and wheat, and on par with copper and crude oil, the Quarterly predicted.
“The transition to low emission technologies will add significantly to the demand for non-ferrous exports over the outlook period. Notably, lithium exports are now forecast to rise by over 180% to $13.8 billion in 2022–23 but then drop to $12.9 billion in 2023–24, as prices ease. Lithium exports in 2021–22 were almost $5 billion, up from $1.1 billion in 2020–21,” the Quarterly confirmed.
And the reasons for this – shortages – in supplies of spodumene, lithium hydroxide and lithium carbonate which continue to push spot prices to new records.
Spot spodumene concentrate averaged about $US4,720 a tonne in August 2022 (SC6.0, CIF China). This was up slightly from July, but was a ten-fold increase from the $US418 a tonne recorded in January 2021.
Spot prices for lithium hydroxide (delivered to China) averaged $US70,300 a tonne in August this year, down slightly from the April peak of $US74,688, but still more than eight times the $US7,984 average of January 2021.
Supply disruptions in August (due to extended power cuts in Sichuan province, thanks to the intense heatwave) also boosted pressure on lithium prices in China. Sichuan produces more than 20% of China’s lithium.
The Quarterly points out that there has been a change in way price rises are being received by Australian producers.
“As most Australian producers have historically utilised long-term contracts, prices received take time to adjust to shifts in spot prices.
“High average prices reported by Australian producers indicate spot prices are now flowing more rapidly into contract prices,” the Quarterly reported.
That means for producers like Pilbara Metals, Mineral Resources and IGO, their quarterly reports should show a sharper rise in revenues and income in coming years than they saw in 2021-22.
“ABS trade data indicate that average realised prices (which reflect a mix of contract and spot priced exports) have increased strongly so far in 2022, as processors seek to ensure supply is sufficient to meet expected demand,” the Quarterly said.
Looking to price movement in the immediate future, the Quarterly said spodumene prices are forecast to rise from an average of $US598 a tonne in 2021 to $US2,730 a tonne in 2022, “as record spot prices feed through into contract prices.”
“Prices are expected to remain high in historic terms over the outlook, averaging $US3,280 a tonne by 2023 before moderating to $US2,490 in 2024.”
The lithium hydroxide price is forecast to rise from $US17,370 a tonne in 2021 to $US38,575 a tonne in 2022. Prices are expected to peak in 2023 at over $US50,000 a tonne before moderating to average around $US37,600 in 2024.
And on demand, the Quarterly estimates world demand for lithium is estimated to increase from 583,000 tonnes of lithium carbonate equivalent (LCE) in 2021 to 724,000 tonnes in 2022.
Over the following two years, demand is forecast to rise by over 40%, reaching 1.058 million tonnes by 2024. “Asia remains the major source of demand for lithium, despite the spread of new battery manufacturing capacity into Europe and the US,” the Quarterly comments.
“World output was 546,000 tonnes LCE in 2021, and is forecast to reach 682,000 tonnes in 2022 and 1.034 million tonnes in 2024.
“This rapid growth — of over 80% in three years — is forecast to be met by gains in output by Australia, Chile (via expansions to Albemarle and SQM brine operations) and Argentina (via new and expanded brine operations by Livent, Allkem and Minera Exar).”
“While much of the forecast export growth is price driven, Australia’s production capacity is also forecast to grow strongly over the outlook. Expected annual average growth of over 20% a year will see production rise from 247,000 tonnes of LCE in 2020–21 to 387,000 tonnes in 2022– 23, and 469,000 tonnes in 2023–24.
Over the forecast period, export volumes of spodumene concentrate are forecast grow by more than one-third. From 2.3 million tonnes in 2021–22, spodumene concentrate exports are forecast to increase to 3.2 million tonnes in 2023–24.
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And the latest Quarterly says Australia’s hydroxide refineries are on the verge of commercial production – something often ignored by the many motormouths calling for more manufacturing and value adding in the mining sector – that could be upwards of 20% of global capacity by 2027 and possibly more.
Following the key milestone of first production of battery grade lithium hydroxide in May, the Kwinana lithium hydroxide refinery near Perth (51% Tianqi and 49% IGO) recommenced production in June after a planned three-week shutdown.
IGO has stated that production of battery grade hydroxide has allowed the start of the product qualification process with offtake partners, with an expected completion time of 4-8 months.
The company expects Train 1 production to ramp up concurrently with the qualification process over the coming quarters, in anticipation of the plant reaching commercial production during 2022–23.
Construction of Train 2 has been partially completed, with the decision for the recommencement of construction to be made by the end of 2022. Each train has a capacity of 24,000 tonnes a year.
First product from Train 1 of the Kemerton lithium hydroxide plant (Albermarle 60%, Mineral Resources 40%) was delivered in early July 2022. Mechanical completion and commencement of production at
Kemerton’s Stage 2 — which will produce an additional 25,000 tonnes a year — is targeted for the December quarter 2022.
Pilbara Minerals’ joint venture with POSCO for the production of lithium hydroxide in South Korea was completed in April.
During the June quarter, detailed engineering, procurement, site preparation and road works commenced. The joint venture plans to source over 300,000 tonnes a year of spodumene concentrate from the Pilgangoora operations.
Construction of Covalent Lithium’s (Wesfarmers 50%, SQM 50%) Kwinana lithium hydroxide refinery progressed further in the June quarter 2022.
The refinery is forecast to start in 2024 — making 50,000 tonnes of lithium hydroxide a year. The refinery will source spodumene from Mt Holland, where construction of the village and aerodrome has been completed, and pre-strip mining and construction of the concentrator is underway.
By 2024, Australia may have about 10% of global lithium hydroxide refining capacity, rising to about 20% of global lithium refining by 2027.
But this will not come without risks, according to the Quarterly authors who warn of the dangers to the strong forecast growth for Australian lithium production and revenue over the outlook.
These include “Delays to approval and construction of new mine and processing plants, as well as difficulties achieving ramp up to full output, would see slower growth in spodumene output volumes and export values.”
“For Australia’s emerging lithium hydroxide refining sector, more unanticipated delays or technical challenges associated with achieving required product grade, purity and consistency, could delay output and exports.”
And then there are value adding in other areas of the sector.
The Quarterly says Australian businesses “are expected to continue their expansion into higher value-added activities over the outlook period.”
“Potential avenues include growth up the battery value chain, from mining and refining into precursor chemicals for cathodes, electrolyte production battery anode plants, battery cell research/production, and battery manufacturing.”
