Lithium, the 21st century white gold in the energy transition

This soft and light metal possesses a key quality for energy transition: its capacity to store energy in a small space. Which explains why it is an essential material in electric vehicle batteries. But what about its investment potential? High and not without risks. 

Lithium’s versatility is readily attested to by the myriad uses to which it can be put. In mobile phones, tablets, laptops; in electric vehicles, building materials and air conditioning; in dyes, glass containers and even medicines; in spacesuits, submarines, and so on. The path towards energy transition has served to fuel lithium fever and highlighted its enormous investment potential. 

It is expected that by 2030 world demand will have quadrupled, which will see the current demand for 675,000 t of lithium carbonate equivalent (LCE) in 2022 rise to 2.7 million, according to Fastmarkets, the international agency that specialises in reports on precious metals and mining. The electric vehicle is driving and will continue to drive its growth. Indeed, its importance will double in 2030 according to Chilean Copper Commission forecasts. 

Australia is the main producer of lithium, accounting for half the world market, followed by Chile, which has a market share of some 25%, while China ranks third with 13%. In Europe, Portugal’s practically 1% world market share ranks it eighth in the world, according the US Geological Service UU. (USGS), while Spain could very well become the second biggest producer in Europe. Basically because Extremadura is said to be home to what is considered the second biggest lithium reserve on the continent.

The Australian firm, Infinity Lithium, has set its sights on the Spanish region to work a mine in San José Valdeflórez (Cáceres). “Bearing in mind Fastmarkets demand estimates for 2026 (the first year in which the plant would be operative), the project could be producing 1% of the envisaged world demand”, claims the general manager of its Spanish subsidiary, Extremadura New Energies, Ramón Jiménez Serrano.   

Lithium: between climate neutrality and its own sustainability

Discovered in 1817 by the Swedish chemist, Johan August Arfwedson, this white alkali is the softest (it can be cut with a knife) and lightest (it floats on water) metal known. It may very well become a strategic metal in our endeavours to achieve climate neutrality given its enormous capacity to store energy in a relatively small space. Which explains why it is a key component of lithium ion batteries for electric vehicles.

Notwithstanding, the challenge lies in making its mining sustainable, given that its production requires heavy energy and water consumption on not being found in a pure sate in nature. Lithium is compacted into rocks alongside other minerals. These must be crushed and subsequently mixed with water to be separated. Lastly, it must be left in big tanks for evaporation purposes. Consequently, its slow production turnaround is another of its weak points. Nevertheless, increasing interest has led experts to agree that these obstacles can be taken as opportunities for future improvement.

Price volatility

Can the supply meet the rising demand? Several studies have been conducted on this question, albeit inconclusive in their findings because its consumption is closely tied to electric vehicle sales. Thus we have a market snared in a vicious circle: consumers are not buying these cars because neither current technology nor charging points suffice to provide enough driving range.

“Given the weight electro mobility has in the demand for lithium, caution demands great transparency regarding some of the important risks facing the industry. This is particularly important when considering the fact that historically electric vehicle sales have fallen below market expectations. A situation that logically casts doubts on expected lithium demand forecasts”, advises the aforementioned Chilean Copper Commission report. This public body groups risks into short, medium and long-term ones. Among the short-term risks are: economic crises, like the one caused by the pandemic; medium-term risks include, among others, the price of electric vehicles as opposed to combustion ones; and lastly, there are long-term risks regarding possible lithium substitutes.

Peak price reached in November

Lithium prices have been subject to sharp fluctuations caused by electro mobility market developments. Over the last two years, the race by car manufacturers to get hold of the raw material saw its price shoot up by over 1,200% since 2020 in the Asian Metal Inc index, reaching its highest peak per ton last November (US$86,500 at the current exchange rate), explains Bloomberg. However, the biggest world consumer, China, and its zero-Covid lockdown policy, triggered a considerable fall in demand. 

Given this state of affairs, a recent Goldman Sachs forecast envisages the cash price for lithium carbonate stabilising around the US$34,000 mark over the next 12 months, as opposed to its current US$53,300 average. It also foresees an increase of demand of 34% until 2025 against the current 25% growth figure, according to Reuters. 

In the search for improvements to reach zero pollutant gas emissions by 2050 and thereby the sought-after climate neutrality, any sustainable innovation is a potential investment whose returns will be seen in the long term.