Hello Investors! I am presenting you with this sector research that i did for the Lithium Market. Have a nice reading session!

Table of Contents

• Introduction
• Lithium Locations
• Top Lithium Reserves Currently known
• How Lithium is produced
• Top Producers of Lithium
• Prices in China
• Lithium Price Drivers
• Important points to consider for the lithium market.
• Criticism to Lithium Extractions

Introduction

In the late 1980s, the discovery of Lithium’s efficiency in the storage of energy for the construction of electric batteries helped to increase the demand of this precious metal in the last decades, even today the demand is not ceding. Compared to other materials, Lithium can store lots of energy in a tiny space, making it ideal for consumer electronics and EVs.

Worldwide production in 2021 increased by 21% to approximately 100,000 tons from 82,500 tons in 2020 in response to strong demand from the consumer electronics market due to the Covid-19 pandemic’s lockdowns and increased prices of lithium. Global consumption in 2021 was estimated to be 93,000 tons, a 33% increase from 70,000 tons in 2020.

The metal’s global end-use is conveyed as follow:

• 74% batteries;
• 4% ceramics and glass;
• 3% lubricating greases;
• 2% continuous casting mold flux powders;
• 2% polymer production;
• 1% air treatment;
• 4% and other uses.

Lithium consumption for batteries has increased significantly in recent years because rechargeable lithium batteries are used extensively in the growing market for electric vehicles and portable electronic devices, increasingly used in electric tools, and grid storage applications. Lithium is extracted from:

• Lithium oxide and hydroxide
• Lithium carbonate
• Lithium-cobalt oxide
• Lithium-nickel-cobalt-aluminum oxide

Lithium Locations

Four mineral operations in Australia, two brine operations each in Argentina and Chile, and two brine and one mineral operation in China accounted for the majority of world lithium production. Additionally, smaller operations in Brazil, China, Portugal, the United States, and Zimbabwe also contributed to world production of this strategic resource.

Lithium supply security has become a top priority for technology companies’ strategic alliances and joint ventures among tech firms and exploration companies continued to be established to ensure a reliable, diversified supply of lithium for battery suppliers and vehicle manufacturers. Substitution for lithium compounds is possible in batteries, ceramics, greases, and manufactured glass. Examples are calcium, magnesium, mercury, and zinc as anode material in primary batteries; calcium and aluminum soaps as substitutes for stearates in greases; and sodic and potassic fluxes in ceramics and glass manufacture.

Top Lithium Reserves Currently known:

1. Chile: 9,200,000 MT
2. Australia: 3,800,000 MT
3. Argentina: 2,200,000 MT
4. China: 1,500,000 MT
5. United States: 750,000 MT
6. Zimbabwe: 220,000 MT
7. Brazil: 95,000 MT
8. Portugal: 60,000 MT

Chile has the most reserve of economically extractable lithium in the world, estimating for around a 37% of global reserves. SQM (NSYE:SQM) is a key lithium producer in Chile’s Salar de Atacama, and in 2018 it finally reached a long-awaited agreement with Corfo, the country’s development agency, over royalties. Albemarle (NYSE:ALB) is another top lithium producer in Chile.

How Lithium is produced

Put simply, lithium from Australia comes from ore mining, while in Chile and Argentina, lithium comes from salt deserts, so-called salars. The extraction of raw materials from salars functions as follows: lithium-containing saltwater from underground lakes is brought to the surface and evaporates in large basins. The remaining saline solution is further processed in several stages until the lithium is suitable for use in batteries.

Top Producers of Lithium

1. Jiangxi Ganfeng Lithium Co. Ltd (SHE:002460). The company has acquisitions in Mexico, Ireland and Australia. Founded by Li Liangbin, an expert in the lithium business.
2. Albemarle Corporation (NYSE:ALB) is the biggest American lithium producer. It is also engaged in the production of other chemicals and has a leading position in lithium production. It is the largest provider of lithium for electric vehicles with a recorded revenue of $3.33 billion in 2021.
3. Tianqi Lithium (SHE:002466). A Sichuan mining and manufacturing company. It controls one of the largest percentage of worldwide production with its lithium hydroxide procution plant in Kwinana Industrial Area, Australia.
4. Mineral Resources Limited (ASX:MIN). An australian mining company focused in extractions of various resources including lithium with headquarters in Perth and listed on the Australian Stock Exchange
5. Sociedad Química y Minera de Chile S.A. (NYSE:SQM). It is a Chilean chemical company and one of the largest lithium producers in the world. Their main facilities are based in the Atacama Desert in Tarapaca as well as the Antofagasta regions. It delivered revenues of $2.86 billion in 2021.
6. Sichuan Yahua Industrial Group Co. Ltd (SHE:002497). It is one of the leding lithium and explosive producer in China.
7. Livent Corporation (NYSE:LTHM). Operating for six decades, it is an important supplier of lithium to electric vehicle manufacturers and mobile devices.
8. Lithium Americas Corp. (NYSE:LAC). Recently raised capital and debt for at least 1 $1 billion, it is expanding its business and targeting an initial 40,000 tpa lithium carbonate capacity at Thacker Pass and Cauchari-Olaroz, where its already planning to increase capacity by at least 20,000 tpa.
9. Pilbara Minerals (ASX:PLS). With a recording revenue of $176 million in 2021, it is one of the leaders in lithium production in Asutralia.
10. Allkem Ltd (ASX:AKE). Previously known as Orocobre Ltd, Allkem is the fusion of the former with Galaxy Resources Ltd. It has several operations and projects including a hard-rock mine in Western Australia, a hard-rock spodumene project in Canada, and a brine project in Argentina. It is still working to develop its flagship project in Sal de Vida, Argentina.
11. Bacanora Lithium (private). It is focusing on building a 35,000 tonnes per annum battery grade lithium operation at Sonara in Mexico. The completed feasibility study revealed a net present value of $1.25 billion at an IRR of 26%. The company claims that its costs of $4,000 per tonne are among the lowest in the industry.
12. Savannah Resources (LON:SAV). It is the biggest lithium producer in the United Kingdom and aims to be a leading supplier of lithium in Europe. It produces lithium from its Barroso Lithium Project in Portugal. The company says that this mine has Europe’s most significant resource of hard rock spodumene lithium and can produce enough lithium to supply 500K electric vehicles per year.
13. Piedmont Lithium Inc. (NASDAQ:PLL). It was recently selected by the United States Department of Energy for Tennessee Lithium Project, receiving a grant worth $141.7 million. The company aims to build a lithium supply chain in the United States that will support the electric vehicle manufacturing industry.
14. Grupo Mota, Felmica (Private). Felmica operates the biggest lithium mine in Europe. This mine is expected to produce lithium for the next 30 years.

Prices in China

China is a dominant force in lithium pricing, representing 50% of global chemical output and use, which should grow while compounds are increasingly exported internationally.

Lithium carbonate was at $7,000 in january, trading for $26,200 in November 2022

Lithium hydroxide prices increased from $9,000 per ton in january 2022 to $27,400 in November 2022. Spodumene, a lithium source gemstone, was selling for $450 per ton in january 2022 to about $2,300 in November 2022. Lithium metal was selling for $77,000 per ton in China to 97,000 per ton in July 2022.

Lithium Price Drivers

The lithium market is changing and the battery boom is the primary driver of this. The way physical market participants price lithium is evolving, with increased monitoring of spot-based price movements having an evermore profound impact on contract negotiations.

Lithium pricing trends are deeply rooted in the transportation segment’s ongoing shift toward electrification. In recent years, accommodative government policy, declining costs, consumer preference, and technological improvement have supported rapidly increasing adoption of electric vehicles. So far lithium supply have not kept pace with the surge in demand. It is expected for the lithium market to enter a supply deficit state for several years, presenting opportunities for the mining companies that dictate supply.

Surging demand for EVs and the inelastic nature of lithium supply are the primary drivers behind the increase in lithium prices in 2022.

Supply is unlikely to grow in lockstep with demand through the first half of the decade, likely generating deficits that could support elevated lithium pricing. Elevated lithium pricing has generally translated into strong results for lithium miners in recent quarters, including Albemarle, SQM, and Ganfeng.

Lithium prices have surged more than 120% year-to-date and are up as much as 10x versus historical levels, according to the Benchmark Minerals Intelligence lithium price index.

Miners are hesitant to boost production, fearing that flooding the market with supply could push the prices down. For example, this scenario occurred between 2015 and 2018 when miners hiked lithium production in anticipation of rapid EV sales growth in the immediate term. This speculation turned out to be premature, leading to lithium price volatility during that period.

Important points to consider for the lithium market.

• Lithium oversupply and slow downstream demand are weighing on lithium prices in China after material supply grew faster than demand.
• During periods of high price volatility, producers and consumers negotiate more regularly to control the price risks of procuring lithium
• Some consumers are procuring part of their material as a long-term contract as well as on spot to control the price risk.
• Global lithium prices should follow China’s spot market.

Criticism to Lithium Extractions

There are critical reports on the extraction of lithium from salars: locals complain about increasing droughts, which threatens livestock farming or crops failures. It is still unclear to what extent the drought is actually related to lithium mining even though no drinking water is needed for the lithium production itself. What is disputed, on the other hand, is the extent to which the extraction of saltwater leads to an influx of fresh water and thus influences the groundwater at the edge of the salars.

What do you think? What are tour positions on Lithium? Are you Bullish or Bearish?