Lithium: Whatever It Takes

In today’s Money Morning…a global fight for lithium…this competition is reflected in lithium prices…demand is only going to ramp up…and more…

Markets are down today.

There were already concerns regarding Omicron, the new COVID-19 variant, but adding to the worries are now comments from the US Federal Reserve.

During a US Senate committee meeting yesterday, US Fed chairman Jerome Powell said the Fed may speed things up when it comes to tapering stimulus.

The economy is very strong and inflationary pressures are high. It is therefore appropriate, in my view, to consider wrapping up the taper of our asset purchases…perhaps a few months sooner.

And he also admitted inflation isn’t so transitory after all. ‘It’s probably a good time to retire that word,’ he said.

All in all, it’s looking like an interest rate hike may be on the cards soon.

Everything is down today: gold, oil, iron ore. The comments have even taken some air out of the lithium trade.

The Global X Lithium & Battery Tech ETF [NYSEARCA:LIT] is down around 1.16% overnight.

But it may be a short respite.

A global fight for lithium

As I’ve written before in these pages, there is a frenzy to get a hold of lithium resources as supply tightens.

Ganfeng Lithium Co and CATL were embroiled in a bidding war recently for Millennial Lithium Corp, a company with assets in Argentina. In the end, it was Lithium Americas who swept in at the 11th hour, buying the company for US$400 million.

And, as Bloomberg reports this week, things may ramp up as ‘China’s Companies Are Going to Any Length for a Hold on Lithium’:

Automobile executives in China have had a lot to contend with this year. But those operating in the electric-car space (which is almost everyone these days) have had it especially tough. Not only has the world’s biggest EV market become even more crowded in 2021 but the explosive sales — deliveries are expected to more than double this year to around 3 million units — have led to soaring prices for raw materials. That’s also weighing on battery makers’ bottom lines and sparked heated competition globally for lithium resources.

The chip shortage that’s gripped the car industry by the throat is a reminder to EV executives in China of what might happen if they run short of lithium. Competition for such an indispensable battery metal will only get fiercer; you can expect the Chinese to want a ring seat at any bidding war.

It’s not just Chinese companies, though. American and European companies are also trying to get a piece of the pie, with several companies looking at opening mines in the US and Europe to provide for those markets.

And it’s not just battery producers looking to secure supplies but also carmakers.

Take Vulcan Energy Resources Ltd [ASX:VUL], for example. This week they signed a five-year deal with Stellantis, who manufactures cars like Peugeot and Citroen, to supply them with lithium hydroxide starting in 2026 from Vulcan’s project in Germany.

As Vulcan’s Managing Director Dr Francis Wedin said:

The definitive offtake agreement with Stellantis aligns with our mission to decarbonise the lithium ion battery and electric vehicle supply chain. The Vulcan Zero Carbon Lithium Project also intends to reduce the transport distance of lithium chemicals into Europe, and our location in Germany, proximal to Stellantis’ European gigafactories, is consistent with this strategy.

And this is only a week after Vulcan signed another agreement with Renault for supply…

How to Limit Your Risks While Trading Volatile Stocks. Learn more.

This competition is reflected in lithium prices

Prices for lithium carbonate have soared by 317% since this time last year, according to Benchmark Minerals.

This isn’t the first time that lithium prices have rallied, they did the same during 2015–18. But that rally fizzled out as more producers entered the market and prices collapsed.

This time things are looking a bit different, though.

While there are more lithium mines coming our way, it takes a while for that supply to get onto the market.

Higher prices are also driving battery and EV makers to take on longer-term contracts to secure supplies.

And, of course, back in 2015 you didn’t have as many carmakers investing in EVs as governments set up targets to phase out petrol cars. Demand is only going to ramp up…

The Australian Government Department of Industry, Science, Energy and Resources (DISER) expects global demand for lithium to go from 305,000 in 2020 to 486,000 tonnes of lithium carbonate equivalent (LCE) this year…and that to increase to 724,000 tonnes by 2023.

So while markets are down, it’s still a good time to look into lithium.

Until next week,

Selva Freigedo Signature

Selva Freigedo,
For Money Morning

PS: Selva is also the Editor of New Energy Investor, a newsletter that looks for opportunities in the energy transition. For information on how to subscribe, click here.


Selva Freigedo is an analyst at Money Morning. She has a background in financial economics, but what makes Selva´s experiences different to many are the places she has lived and worked. Born in Argentina, she has also lived in Brazil, the US, Spain, and now Australia. She has seen up close many of the economic phenomena that worry Fat Tail Investment Research readers, like hyperinflation, bank bail-ins and governments burdened with so much debt it cannot possibly be repaid.

Every week, she goes through each article, research note and recommendation produced by our experts around the world to give you information on how to build and protect your wealth. Selva packages the week’s best ideas into one easy to read report: Port Phillip Insider Extra.


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