Low lithium prices slow bid to loosen China’s grip on market
The lowest lithium prices in more than two years are hampering a handful of miners that want to challenge China’s dominance in the market.
China controls most of the processing that makes the mineral usable in rechargeable batteries, leaving American vehicle makers vulnerable to supply disruptions if trade tensions escalate. With automakers from Tesla to General Motors aiming to manufacture more electric cars at home, small companies are seeking to build the first U.S. lithium mines in decades as a step toward forming a local supply chain.
Financing mines, however, is proving a challenge after a rush of Australian supply dragged down prices by a third from a record in mid-2018. Companies also face stricter environmental rules and regulatory hurdles in the U.S., which accounts for just 1.2 percent of global lithium production.
“It’s a difficult environment,” said Keith Phillips, chief executive officer at Piedmont Lithium Ltd., which is going through the permitting process to build a lithium operation in North Carolina. “Those looking to raise capital now might be able to do it, but the terms won’t be as good as they might have been at some other point.”
While prices are now weak, lithium use will significantly jump by 2023 and the market could move into deficit around that year, Benchmark Mineral Intelligence estimates. All the supply from the globe’s major lithium miners Albemarle Corp., Soc. Quimica y Minera de Chile SA, Tianqi Lithium Corp. and Ganfeng Lithium Co. — companies that mine mainly in Australia, Chile and China — probably won’t be enough to meet demand.
“When battery production capacity starts being set up outside of China in the next three years or so, the urgency to have that supply outside of China becomes even more critical,” said Andrew Miller, a lithium analyst at Benchmark Mineral Intelligence
Lithium mines take three to five years to be built, which means that investment needs to flow into new projects within the next 12 to 18 months to fill the potential supply gap in the future, according to Miller. BloombergNEF estimates U.S. lithium cell manufacturing capacity will more than triple through 2025 as more battery manufacturing facilities are built near demand centers.
Still, hurdles abound. Approval processes to sell lithium to battery-making companies typically last 18 months, and miners need to prove they can supply a constant amount of high-quality product. In the past, that’s been a challenge even for established producers.
“Some of these projects could become lithium mines, but it’s not a given,” said Chris Berry, a consultant and founder of battery metals research firm House Mountain Partners. “It remains an open question whether they can raise $500 million or $1 billion for a strategic commodity when they have never done it in this country.”
Top lithium miner Albemarle, which produces about a quarter of the world’s output, together with its biggest rivals SQM, Tianqi and Ganfeng are the only producers with the size, volumes and cost position to serve large customers, according to Albemarle CEO Luke Kissam. The industry will experience a shakeout over the next decade, he said.
“It’s going to be tough for newcomers,” he said. “A lot of these new entrants are going to get started in hopes that one of the big ones buy them out.”