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Electric vehicles, storage units drive prices up

This Tesla car uses Panasonic's lithium-ion battery.

SYDNEY -- Two big trends in energy technology -- the expanding appeal of electric vehicles and the growing demand for at-home battery storage systems -- are driving changes across the complex global supply chain for the soft light metal known as lithium.

     The changes affect lithium producers in South America, Australia and China, processors in North Asia, North America and Europe, and big end users such as battery makers Panasonic of Japan, LG Chem and Samsung SDI of South Korea, and high-profile U.S. electric vehicle maker Tesla.

     In the view of lithium industry expert Joe Lowry, president of U.S.-based consultancy Global Lithium, the world is on the verge of a full-blown lithium shortage. He says the industry needs new supplies in 2016 to help slow price increases flowing from a two- to three-year imbalance between supply and demand.

     Consumption this year is expected to be about 160,000 tons of lithium carbonate equivalent, or LCE, the industry's standard unit of measure. The trend is for demand to grow.

     Roskill, a London-based metals and minerals consultancy, said earlier this year that its base case would see lithium consumption reach 290,000 tons of LCE in 2020, while its "optimistic" scenario sees the figure rising to 420,000 tons.

     Lithium carbonate sells for between $5,000 and $6,000 a ton.

Demand for electric vehicles

Electric vehicle batteries alone could be a $30 billion market by 2020, according to Boston-based Lux Research, which recently surveyed the capabilities of the leading battery makers.

     Global Lithium's Lowry prefers the term "electric transportation" rather than "electric vehicle" because the latter, for many people, implies only cars. "Electric transportation opens up the category to include electric buses -- which is a booming business in China -- and ebikes and scooters, etc.," Lowry said.

     Longer term, Lowry believes that energy storage systems could be just as important -- if not more so -- than transportation.

     Underpinning stationary energy storage demand is the growth of renewable power sources such as wind and solar, which can overcome their intermittency problem -- no wind or no sun equals no power -- if they are hooked up to cheap, reliable battery storage.

     At the technological heart of this demand growth is the ubiquitous lithium-ion battery, favored for its combination of safety, power, durability and cost. In time, it could be replaced by lighter, more powerful lithium-air batteries, but commercialization of this technology could be a decade or more away.

     Li-ion batteries have been with us for years, powering cameras, smartphones, laptops, game devices, drones, power tools and other small-scale consumer electronics. They require only small amounts of lithium -- say, 7 grams of LCE in a smartphone and 30 grams in a tablet. Between them, the 1.2 billion smartphones and 260 million tablets sold in 2014 consumed only 16,200 metric tons of LCE, according to a September presentation by Albemarle, a leading U.S. lithium producer.

     In contrast, electric vehicles and stationary energy storage systems for homes, businesses or industry use much more lithium in their batteries. A hybrid electric passenger car might use 5kg of LCE, while one of Tesla's high performance cars could use as much as 80kg.

     That is one reason why Tesla and Panasonic, its Japanese battery partner, are spending billions of dollars on their Gigafactory in Nevada. It will make Li-ion battery cells, modules and packs to meet what the two companies expect will be a huge and rapid build-up in demand for electric vehicles and stationary energy storage over the next five years. Tesla's output goal is 35 gigawatt-hours of battery capacity by 2020.

     Cosmin Laslau, senior analyst at Lux Research, said that, given the importance of low cell prices for both vehicles and stationary energy, Tesla was right to accelerate the production processes at the Gigafactory.

Growing competition

Panasonic, which already produces battery storage systems for homes and businesses, is the world's biggest maker of small-scale Li-ion batteries. It faces fierce competition from South Korean rivals Samsung SDI and LG Chem, both of which last month opened big new electric vehicle battery plants in China.

     Aside from its Chinese contracts, Samsung is a key partner of BMW and Volkswagen, while LG Chem also supplies Volkswagen, Audi, GM, Ford, Daimler, Hyundai and Renault. In addition, LG Chem last year delivered a 32 megawatt-hour battery storage system to the Californian city of Tehachapi. The system contains more than 600,000 individual Li-ion cells.

     Also in the picture is BYD, the Chinese car, bus and battery maker that has Warren Buffett's Berkshire Hathaway group as a key shareholder and whose Qin sedan plug-in hybrid now outsells the Nissan Leaf, the Tesla Model S, the BMW i3 and Mitsubishi's Outlander PHEV.

     BYD says it is making a "huge contribution" to the growth of the Chinese electric vehicle market and industry, which it says "in turn, is largely responsible for the EV boom in 2015."

     Another China-backed battery maker, U.S.-based A123 Systems, which powers the energy recovery systems on most Formula 1 race cars, confirmed last month it was investing $300 million on its China and U.S. plants to lift battery output to 1.5gwh.

     Laslau says that while the speed of factory construction by LG Chem and Samsung SDI in China over the past 12 months is "certainly impressive and important," the bigger factor is whether demand for their products exists.

     "The biggest indicators to keep monitoring," he said, "are signed deals, the associated products, and the quality of those products, as those together really determine how much of a factory's capacity is ultimately successfully used up."

     In Laslau's view, it is "very unlikely" that stationary energy storage will overtake the transportation market for battery sales by 2020. "Yes, more stationary batteries will be sold," he said, "but the ramp-up in electric vehicles too will be pretty aggressive over the next five years."

     Until recently, high prices, safety concerns and regulatory hurdles have hampered the broad acceptance of home, business and utility-scale battery storage systems. But technological advances, particularly in managing the systems that bring together storage and renewable power generation, are clearing the way for rapid growth.

Raw materials

Most of the world's lithium chemicals used in batteries and other applications such as glass, ceramics, lubricating greases, thermoplastics and pharmaceuticals come from lithium sourced from salt-pan brines in Chile and Argentina or from hard-rock mining in Western Australia and China.

     According to Global Lithium's Lowry, the main customers for lithium are cathode makers, not battery makers directly.

     "As a general rule, no major cathode maker single sources anymore -- it is simply too risky," Lowry said. He added that Sumitomo Metal Mining, which makes most of the cathode going into the Panasonic batteries for Tesla, three years ago got 90% of its lithium hydroxide from U.S.-based FMC. That share now is "well below 50%," he said.

     The largest battery makers use a combination of internal and external cathode sourcing, he said.

     Aside from the four main producers -- FMC, SQM of Chile, Albemarle and China's Chengdu Tianqi -- a number of smaller miners are attempting to bring lithium supplies to market. They include Orocobre, a company listed in Canada and Australia that has recently built a brine-based project at Salar de Olaroz in Argentina in partnership with Japanese trading house Toyota Tsusho. The company last month said it would achieve its annual nameplate capacity of 17,500 tons of LCE some time after January.

     According to Lowry, Orocobre could be "the star of 2016" -- if it achieves economic production. He said the lithium market needs a successful Orocobre to help slow price increases due to a supply-demand imbalance over the next few years.

     "I hope Orocobre succeeds," he said, "but I put the odds at 50-50 at best and see almost no chance of them supplying more than 13,000 metric tons in 2016."

     Two other Australian lithium projects may begin production in 2016. A Mount Cattlin site operated by Galaxy Resources and General Mining has a sales agreement with Mitsubishi Corp. A Mount Marion mine run by Neometals and Mineral Resources has an off-take agreement with Jiangxi Ganfeng, China's second largest lithium producer, under which Ganfeng has agreed to take a certain amount of the mine's future production.

     South Korean steelmaker Posco, which has developed its own lithium extraction technology, is working with Toronto-listed Western Lithium on the Cauchari-Olaroz project in Argentina. The partners are hoping the site begins producing lithium by the end of 2016 and that production reaches an annual 20,000 tons by the end of 2017.

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