Is a lithium price rebound around the corner?

Slower growth in demand for electric vehicles due to China's economic stagnation, lower lithium prices and technological innovation are pressuring the lithium industry, including in Latin America.

Energy density and the useful life of batteries for electromobility have vastly improved, raising concerns about overcapacity in the market and depressed transaction value of lithium. Several companies are changing their strategies in anticipation of a price recovery.

BNamericas speaks with José Hofer, a partner at UK-based consultancy SC-Insights, about the market dynamics.

Hofer is a former researcher at the US Department of Energy's Critical Materials Innovation Center and was business intelligence manager for Chilean lithium producer SQM. He was also chief forecaster for Benchmark Mineral Intelligence.

BNamericas: Why has the lithium price dropped this year and what are your short- to medium-term expectations?

Hofer: This is because many companies in China, such as [energy technology firm] CATL and the car manufacturers, do not generate income from lithium production, but from lithium-ion cell production or the sale of electric vehicles.

In addition, China imports a lot of material from different parts of the world, such as South America or Australia, including low-grade material from Africa and Brazil, so it does not have a problem with low prices.

In the short term, lithium chemical and spodumene prices will remain low, although this will not impact South American projects because their operating costs are competitive. In Australia, however, as the price of spodumene fell below US$750/t, several projects were halted, such as Arcadium Lithium's Mt. Cattlin, while and others, like Mineral Resources' Mt Marion and Pilbara Minerals' Pilgangoora, are operating at a loss.

Integrated projects with production in Australia and refining in China, such as those of Tianqi Lithium, Albemarle or Ganfeng, are not at risk, since the operating cost is around US$8,000/t, but non-integrated projects with costs above US$10,000/t are facing difficulties.

BNamericas: While operational costs of lithium producers in salt flats in South America are lower than for rock mining, what would happen if these producers incorporated direct lithium extraction (DLE) technologies that consume more energy and water?

Hofer: The use of DLE technologies is justified in salt flats with low lithium concentrations or in small salt flats, such as those in Argentina, since if evaporation ponds were used, a large part of the salt flat would be depleted to reach the nominal production capacity of a project. In contrast, in salt flats with high concentrations and good climatic conditions for natural evaporation, [DLE] is more of an add-on.

DLE technologies such as ion exchange, solvent or membrane-based extraction, or adsorption [which Livent introduced more than 20 years ago in Argentina] have the disadvantage of consuming much more water than conventional evaporation.

Solvent extraction or ion exchange, meanwhile, have an operational cost 25% higher compared to conventional methods used in the Salar de Atacama in Chile or in some salt flats in Argentina.

BNamericas: What other lithium projects could be halted due to the price decline?

Hofer: Apart from some Australian producers, even CATL could curb its production at Jiangxi Yichun, because hard rock projects, whether clay, spodumene or lepidolite, have become less competitive. A lepidolite project, for example, is almost double the current lithium chemical prices.

Several projects are slowing down the start of production, entering maintenance or revising their feasibility studies due to the current price situation. With a price of US$80,000/t, as in 2022, all were trying to produce at maximum capacity, but with current prices, the business is no longer attractive.

China's interest in lowering prices and controlling supply was demonstrated in 2019 and in 2022-23, accelerating several mining, refining, cathode and cell production projects. Today, China has more than 50% of the battery-grade lithium carbonate production capacity and more than 80% of the battery-grade lithium hydroxide capacity.

Companies such as SQM, Albemarle, Arcadium, Lithium Americas and some Australian companies somewhat offset Chinese dominance, otherwise the market today would be Chinese [dominated].

BNamericas: Will China continue to control the lithium market, despite its economic difficulties and the arrival of new supply from other parts of the world?

Hofer: The big lithium projects have not yet entered the market. Only low-grade offerings have materialized, such as lepidolite in Africa or China, and tailings ore in Brazil. The massive influx of high-grade Western projects, which many of us expect from 2026 onwards, has not yet occurred.

Therefore, given long-term supply constraints and increasing demand, a new price explosion is likely to come.

BNamericas: How much does the recycling industry impact the price of lithium and other key minerals for battery manufacturing?

Hofer: Not much, because there are not enough recycling plants yet. The lithium-ion battery market is new and most of the batteries in operation have not yet reached the end of their lifespan, which averages 12 years. There are even batteries from electric vehicles that last much longer, and others are reused in electrical storage networks and therefore have not yet been recycled.

Most of the material currently recycled includes defective cells or portable batteries and does not represent more than 10% of current supply. On the other hand, recycling plants seek to recover components of economic interest in batteries, such as cobalt, nickel, manganese, copper and some aluminum. But, today these materials are depressed in terms of price.

Cobalt is in low demand for the manufacture of lithium-ion cathodes, since its main production is in the Congo, where there are complaints about human rights violations and child labor. The price of nickel has also dropped because China has begun to supply nickel from laterite deposits, which are processed differently than conventional nickel sulfides. In other words, all battery materials are being economically reviewed in the recycling market.

BNamericas: What are the advantages of lithium ferrophosphate (LFP) batteries, which do not contain cobalt or nickel?

Hofer: The Chinese market has historically used LFP batteries because, despite their lower energy density, they are cheaper and safer. This is because some nickel-cobalt-manganese oxide [NCM] batteries have had short circuits and have burned out, damaging the reputation of some brands.

In contrast, LFPs have long been in operation in Chinese battery supply chains and are a great alternative for European and US carmakers looking to enter the low-cost light electric vehicle segments. Carmakers such as Volkswagen, Daimler-Mercedes, BMW and Audi are turning to LFPs.

However, towards the end of the decade, we are likely to see a number of different options on the market, such as high nickel chemistries for high-end, higher-priced vehicles and LFP batteries for more competitive vehicles. I see sodium batteries for more commercial applications. The big battle this decade will be between LFP and NCM.

BNamericas: How do you explain China's leadership in the manufacture of batteries for electric vehicles?

Hofer: Chinese electric vehicles are so well developed that they now compete head-to-head with the internal combustion vehicle. That is one reason why the US government significantly raised tariffs on Chinese vehicles to keep them out of its market.

China has managed to keep costs low, both through learning how to produce and because of the low prices of the minerals used in batteries. The entire lithium-ion cell pack accounts for almost a third of the total cost of the electric vehicle, so apart from making improvements every year, they have an additional incentive to keep the price of lithium in check.

BNamericas: The EU, like the US, is also seeking to block the import of Chinese electric vehicles to protect its domestic industry.

Hofer: It is difficult to compete with China, since its government is always behind supporting and protecting its companies so as not to lose market share. The United States understood this more than Europe.

The policy of the Department of Energy and the IRA [Inflation Reaction Act] was in this direction and they ensured supply of foreign material with subsidies. They also promoted direct investments in mining and refining projects in the US, while any type of material that has no relation to China receives benefits and subsidized.