Column: Lithium supply crunch Part II – this time it’s for real

Lithium in the NEWS Feb 15, 2022| By Andy Home Reuters.com

LONDON, Feb 15 (Reuters) – The lithium supply crunch has arrived in full force. The price boom of 2016-2017, it’s now clear, was just the dry run. This is the real deal.

Back in November 2017 the spot price for battery-grade lithium carbonate in China peaked at 175,000 yuan per tonne. Fastmarkets currently assesses it at 400,000-430,000 yuan, up 47% on the start of the year and eight times higher than it was at the start of 2021.

China’s spot market, where small tonnages can have big price impacts, may be accentuating the scale of the run-up, but it’s no false flag. From mined spodumene to high-purity hydroxide, every component of the lithium processing chain is on a wild price surge.

There is simply not enough of the stuff around to meet demand at the moment.

Scarcity of what is a critical input for electric vehicle (EV) batteries could potentially act as a powerful brake on e-mobility, with profound implications for global efforts to decarbonise.

Lithium prices are rocketing as supply scarcity bites – Image: Reuters.com

BOOM BUST BOOM

The seeds of today’s lithium boom were sown five years ago, when prices rose to what were then record highs as producers failed to anticipate the demand wave emanating from China’s subsidy-driven roll-out of EVs.

The collective supply response, particularly from hard-rock spodumene producers in Australia, then proved far too strong, leading to the price bust of 2018-2020.

New mines were mothballed, expansion projects were deferred and explorers left to seek their mineral fortunes elsewhere, hollowing out the new project pipeline.

In classic commodity cycle style, this has left producers ill-prepared to meet the current even stronger demand surge. The resulting shortfall of units is fuelling lithium’s white-hot rally.