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Essential for producing lithium-ion batteries, which power electric vehicles (EVs) and energy storage systems (ESS), lithium has earned the nickname “white gold.” However, the journey of lithium prices has been anything but stable, with supply chains heavily dependent on China and recent dips in EV adoption.
To shed light on the challenges and opportunities of the lithium industry, we welcomed Eric Norris, president of energy storage at Albemarle, one of the world’s largest lithium producers to a recent episode of Fast Forward podcast. We recap the discussion below, including exploring the complexities of the lithium market and its critical role in shaping a sustainable future.
Key points from the discussion include:
The current environment presents challenges for the energy transition, particularly in the Western world, despite a long-term growth trend. EV sales continue to grow by over 20%, but lower-than-expected demand has resulted in falling prices.
Regional performance also varies, with most of the growth in EV sales in China while in North America and Europe saw weaker-than-expected growth. To meet the projected demand growth in the industry by the end of the decade, there is a need for improved incentive pricing to avoid hindering the energy transition.
I can’t tell you if prices have bottomed, as they’ve been unpredictable. I will tell you that they are below marginal cash costs and well below incentive cash costs. A Western expansion, even a Chinese expansion, is now questionable at these price levels.
In a challenging market, companies must remain agile as prices may stay low longer than expected. It’s essential to leverage competitive advantages and be prepared to pivot as the market shifts.
Albemarle’s competitive edge lies in its low-cost resource position in brine and rock, said Norris. Although there is currently no market for brine, spodumene is in demand and generates healthy EBITDA margins for the company. For lithium salt, however, there is a lack of margin and it is difficult to earn an acceptable investment return at current prices.
While current price levels are not sustainable for growth, there is optimism for future improvements, said Norris.
Lithium prices can vary significantly based on the source and the specifications. Understanding market values is crucial for identifying pricing opportunities and determining growth strategies within the lithium industry. For example, how valuable is sustainability? Would it be able to justify higher costs associated with processing technologies?
Norris said that Albemarle is experimenting with closed bids and focusing on price discovery to understand product value based on factors including sustainability, source and specification. Norris emphasized the importance of sustainability in product sourcing, noting the challenges in achieving this given the limited options outside of China. Regional value differences exist and there is a need for strong leadership and market differentiation to address these challenges.
Norris also believes that there will be increased opportunities for lithium traders to enter and expand their presence as the lithium industry grows. This is essential for enhancing market liquidity and enabling price risk hedging. Evidence of efforts to build liquidity and infrastructure for a healthy lithium futures market is already seen in major financial hubs like New York, London and China. While trading represents a smaller fraction of Albemarle’s business, it provides flexibility in supply chain management and insights into future price trends. Overall, trading plays a crucial role in the industry’s development.
Looking for the latest lithium prices, news and market intelligence? Head to Fastmarkets’ lithium hub.
Norris believes that there are three key reasons for this:
Refining is challenging due to its reliance on chemical processes, requiring expertise that people in the mining-focused industry may lack. In regions where infrastructure, expertise and a reliable vendor base are insufficient, it will take time for progress to be made.
Meeting constantly evolving customer specifications on product purity, size and morphology, while ensuring standards for both safety and longevity, is becoming more challenging. It involves fine-tuning processes to produce quality products to meet customer demand.
Capital intensity is another barrier. Building large chemical plants involves significant investment in infrastructure, including extensive steel foundations and a complex array of unit operations to manufacture the product.
The exception to this is China, he said. China has a strong talent pool, efficient supply chains and lower capital costs, giving it a competitive edge in both chemical refining and battery manufacturing.
On the topic of direct lithium extraction (DLE), Norris believes it is a complement to hard rock projects rather than a threat. While it may seem disruptive, DLE has been practiced for decades and can unlock resources that are otherwise difficult to extract. It does not necessarily reduce costs but rather unlocks value. As demand for lithium grows, DLE will play a significant role in making brine resources economically viable.
The future of EVs hinges on government policies. Initiatives like the Inflation Reduction Act (IRA) and the Section 30D tax credit for clean vehicles provide affordability to consumers while benefiting original equipment manufacturers (OEMs) by positioning credits at the consumer end of the supply chain. However, these credits depend on critical raw materials sourced domestically or from free trade-friendly countries. At the moment, the benefits do not reach those raw material producers upstream.
On the other hand, it is important to understand that the energy transition involves not only shifting to new energy sources but also ensuring energy security. This, in turn, is tied to national security and technology access. Collaboration between private industries and Chinese producers is often greater than the public narrative suggests, but national security remains a critical factor influencing current policies.
We’re just going to have to make the right decisions, the right investments and the right incentives. It’s all about electric vehicles, so I think it’ll happen.
In an ideal scenario, Norris envisions a future of improved global collaboration, reduced tariffs and less hostility, alongside stronger regional supply chains. This shift could lead to a healthy energy transition and significant growth in advanced technologies, with demand projected to grow two and a half times.
A key indicator of this future is the $100 per kilowatt hour benchmark, which China has surpassed, and he hopes for the rest of the world to catch up on. This will signal a tipping point for EVs over internal combustion engines (ICEs). For this to happen, continued investment and the right incentives are crucial.
According to Norris, the future for lithium looks like the following:
Africa is attracting significant attention as a potential growth area, with large-scale, high-grade resources. While the continent has abundant lithium resources suitable for low-cost operations, challenges such as conflict, nationalism and infrastructure issues vary across regions. Historically, Western companies have faced difficulties due to corruption and environmental, social and governance (ESG) concerns, making them hesitant to enter. However, many Chinese firms have been successful in these markets, positioning Africa as a likely key supplier for China’s expanding energy and energy storage needs.
While EVs dominate current lithium demand, new technologies like advanced lithium metal batteries hold significant value for the defence industry and national security. Governments increasingly view energy storage and access to these technologies as strategic, given their applications beyond EVs, such as grid protection and modern warfare, where lithium plays a crucial role. This presents unique opportunities for these technologies to develop more rapidly than in the EV sector.
The future lithium landscape in a decade is envisioned to feature three key regions: China, North America and Europe, each with self-sustaining supply chains. Global trade will continue, with resources from Australia, Chile and Africa contributing to this interconnected market.
Listen to the full Fast Forward podcast episode to catch the complete conversation with Eric Norris, covering topics including Albemarle’s projects and plans, industry mergers and acquisitions, China’s lepidolite production, the involvement of oil companies in the lithium market, and much more.