Mineral Resources and its US and Chinese partners revealed this week they were taking the rebound in global lithium demand and prices far more seriously that it previously appeared with big plans to boost output of spodumene and associated products from the Wodgina and Mount Marion mines in WA.
The moves have a hint of catch up about them given that other producers such as Pilbara Minerals, Allkem and Liontown seem to be far more proactive, rather than reactive.
The rebound in lithium demand and pricing has been going on for more than six months now – you only have to read the numerous comments from the about to retire CEO of Pilbara Minerals, Ken Brinsden on the subject of pricing and demand for this key EV battery material.
For example, in February when he surprised with the decision he was retiring later this year, he made it clear where he saw the future for this metal.
Brinsden says the market is still underestimating the price outlook for lithium, claiming “people would have their socks blown off” with what buyers will pay for the battery material amid tight supply.
This week’s March Resource and Energy Quarterly supports that comment in its analysis of the outlook for lithium and for Australia:
Strong demand is currently resulting in shortages of spodumene, lithium hydroxide and lithium carbonate, which is pushing spot prices for all three commodities to record levels.
Spot spodumene concentrate averaged around $US2,700 a tonne in February–March 2022, compared to $US1,900 in the December quarter and up more than six-fold from $US420 a tonne in January 2021.
Surging demand and low inventories saw reports of spodumene trades above $US3,000 a tonne in early 2022, according to the Quarterly.
The Quarterly said spot prices for lithium hydroxide (delivered to China) averaged $US57,000 a tonne in February 2022, with daily prices reaching over $US70,000 by mid-March, a more than eight-fold increase from the $US7,984 average in January 2021.
The quarterly also gives some good advice to investors by pointing out that “as most Australian producers have historically worked off long term contracts, prices received take time to adjust while changes in spot prices feed through into contract prices.”
“Total supply from mine and brine operations is currently unable to meet demand. While project development is underway, it will take time to close the supply gap.”
“Stockpile size is difficult to determine, with some estimates of 4–8 weeks for spodumene. With such tight supply conditions, and given delays associated with shipping times and ongoing supply chain challenges, it is unsurprising that some lithium processors and battery manufacturers are currently securing supplies at record high prices.”
On the pricing of spodumene (The form lithium is mined and produced from in Australia) the Quarterly sees it rising from an average $US660 a tonne in 2021 to $US1,325 a tonne in 2022, before moderating to around $US800 a tonne in 2027 (in real terms).
“Lithium hydroxide prices are projected to rise from $US17,970 a tonne in 2021 to $US27,620 a tonne in 2022, before easing to around $US13,140 (in real terms) by 2027.”
Furthermore the report sees Australia’s lithium production more than tripling over the outlook period, rising from 224,000 tonnes of lithium carbonate equivalent (LCE) in 2020–21 to 692,000 tonnes of LCE in 2026–27. That’s annual growth of 20% or more a year.
Correspondingly, export volumes of spodumene concentrate are forecast to increase from 1.6 million tonnes in 2020–21 to 4.7 million tonnes in 2026–27.
Australia’s lithium export earnings are projected to rise from $1.0 billion in 2020–21 to $6.7 billion in 2026–27 (in real terms), as lithium hydroxide production rises. A further 5 lithium hydroxide refining operations are projected to commence operations in Australia by 2026–27.
Australian spodumene concentrate output in the December quarter 2021 rose by 33% year-on-year, with further increases in production expected in 2022 as further capacity comes on stream.
World output is estimated at 520,000 tonnes LCE in 2021, and is forecast to reach 650,000 tonnes in 2022 and 1,476,000 tonnes in 2027 (Figure 15.3). Growth is forecast to be met by increases in output among most producing nations.
“The primary source of ex-Australian growth over the next two years is expected to come from South America,” according to this week’s report.
The Quarterly says Albemarle is commissioning an expansion at its Salar de Atacama project in Chile, while SQM has also signalled higher volumes at its Chilean operations. Strong growth in production is also expected in Argentina through new and expanded brine operations by Livent, Allkem and Minera Exar.
South Korean steelmaker Posco and Rio Tinto also have plans to invest more than $US5 billion in total in two separate operations in Argentina.
Over the five-year outlook, key sources of additional forecast supply include China, Brazil, Canada, DRC and Mali. No mention of Serbia in the report, nor Rio’s Jadar project valued at more than $US2.4 billion.
