Securing Lithium Supply Is Still a Priority as Markets Jitter

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In today’s Money Morning…transport is going through a revolution…lithium is key to the energy transition…lithium producers are still enjoying a boost from high prices…and more…

Charlie Herd sat at a taxi rank in his car in Geelong, waiting to get a fare, when an elderly woman approached him.

Would you be interested in a long fare?’ she asked.

Thinking she meant Melbourne, Charlie was quick to reply ‘Yes’.

But Charlie was very wrong.

I want to go to Darwin and back,’ she told him.

The elderly woman was Miss Ada Beal, a wealthy and adventurous Lorne resident.

Charlie hesitated.

He had a wife and young children. That sort of trip would take a while.

Who would take care of his family while he was gone? And not to mention the risks involved in a trip like that. Charlie was a First World War veteran, but he had never been to the outback.

On the other hand, this was the 1930s. It was the time of the Great Depression, and he could use the money.

I need to check with my wife,’ he told her.

Three weeks later, Charlie, Miss Beal, her friend, and their nurse packed up Charlie’s 1928 Hudson convertible and set off on a great adventure.

They drove from Geelong through South Australia, passing Oodnadatta and then on to Alice Springs.

Charlie had no cell phone or Google Maps. Instead, he followed the compass north most of the way.

There weren’t even that many roads back then, only sand dunes, and Charlie had to use tennis nets to get across them.

The travellers weren’t wearing proper gear either. In most of the photos, Miss Beal is wearing a fur coat…Charlie a suit and tie.

Charlie had a rifle that he used to hunt and defend the group from predators. At night they camped.

There were no mechanics or gas stations. To refuel, they relied on the camel train, a camel network that transported people, fuel, water, and supplies through the isolated parts of the country in the interior.

To get fuel, Charlie had to send a telegram days ahead. The network would then leave fuel under a tree or at any distinctive landmark along the way.

Charlie and his passengers were lucky that the car didn’t break down once.

After 12 weeks, 11,000km, and 550 gallons of petrol — they only suffered a punctured wheel.

I stumbled upon this story in the Surf Coast Times a while back as I drove around the Great Ocean Road. I remember thinking how much transport has changed since.

The truth is that transport keeps evolving, and it will most likely look very different in the next 100 years or so…even in the next 5–10 years!

Transport is going through a revolution

The electrification of transport, for me, is one of the most exciting stories this year as it continues to ramp up.

In the first quarter of 2022, there were two million electric car sales, up 75% from the same quarter last year, according to the International Energy Agency.

And sales will continue to grow as the economics keep improving along with policy and public support. I mean, if one thing became clearer during the election over the weekend, it’s that the energy transition and EVs are important topics here in Australia.

But one of the most interesting things for me about EVs (and the energy transition in general) is that there are plenty of chances for disruption in the industry.

For instance, take lithium-ion batteries.

While you may have heard plenty about the lithium-ion battery, there are many types of lithium-ion batteries.

Usually named after the chemical composition in the cathode, or the positive side of the battery, some of the most common lithium-ion batteries include Lithium-nickel-manganese-cobalt oxide, or NMC for short, Lithium Iron Phosphate (LFP), and Lithium-nickel-cobalt-aluminium oxide (NCA).

But there’s been a lot of research to develop more efficient batteries, and the technology is constantly evolving.

So while it’s not guaranteed that lithium-ion batteries will be the absolute winners when it comes to EVs…

Lithium is key to the energy transition

While the overall market is jittery, securing lithium supply continues to be a top priority.

This week, a bidding war for a 54.3% stake in the Yajiang Snowway Mining Development, which owns a lithium mine in Sichuan, China, caught plenty of eyeballs…literally.

Close to a million people watched the online auction that lasted five days, and it drew in 21 participants and 3,448 bids.

The starting auction price was 3.35 million yuan, but it went for 600-times that amount, 2 billion yuan (about $422 million).

And while the price of lithium may have come off its highs, lithium producers are still enjoying a boost from high prices.

This week, Albemarle increased its 2022 sales forecast to US$5.8–6.2 billion, up from US$5.2–5.6 billion just three weeks ago!

Chile’s lithium miner SQM said its net income would hit US$796.1 million, up from US$68 million in the same quarter last year.

And Pilbara Minerals[ASX:PLS] recent auction of spodumene concentrate on the Battery Material Exchange platform this week reached US$5,955 per dry metric tonne, up from US$5,650 dmt in the previous one.

Of course, at some point, supply will catch up with demand, but it doesn’t look like things are ramping up quickly enough.

Benchmark Minerals estimates that the industry will need US$7 billion of investment each year between now and 2028, the equivalent of US$42 billion.

But as Simon Moores, Managing Director of Benchmark Minerals, put it recently:

In reality that target has already been missed considering timelines to build new lithium mines.

Accounting for misfires on new lithium supply, this $42 billion will be closer to $70 billion.

So we’ll need plenty of investment, and lithium prices will likely stay high for a while as supply tries to catch up with demand.

Until next week,

Selva Freigedo Signature

Selva Freigedo,
For Money Morning

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.

About Selva Freigedo

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…

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