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

There are many more uses of lithium than we can imagine. In mobile phones, tablets, laptops; in electric vehicles, building materials and air conditioning; in dyes, glass containers and even medicines; in astronauts' suits, submarines… On the road to the energy transition, lithium fever has highlighted its enormous potential for investors. 

It is expected that by 2030 global demand will have almost quadrupled, which will see the current demand for 675,000 tons of lithium carbonate equivalent (LCE) in 2022 rise to 2.7 million, according to Fastmarkets, the international agency that specializes in reports on precious metals and mining. And its growth engine is and will be the electric vehicle, whose proliferation will double by 2030, according to forecasts of the Chilean Copper Commission. 

Australia is the main producer, with half of the market, followed by Chile, with a quarter, and China, with 13%. In Europe, Portugal’s practically 1% world market share ranks it eighth in the world, according to the U.S., US Geological Service (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.

Australian company Infinity Lithium has turned its attention to the Spanish autonomous community and a mine in San José Valdeflórez (Cáceres) and, “taking into account the estimated demand for 2026 by Fastmarkets (the first year in which the plant would be operational), the project could produce 1% of estimated global demand”, says the CEO of its subsidiary in Spain, Extremadura New Energies, Ramón Jiménez Serrano.   

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 has a quality that makes it a strategic metal for achieving climate neutrality: 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.

However, the challenge is to make its mining sustainable. It consumes large amounts of energy and water, as it is not found in its pure form 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.

Can the supply meet the rising demand? There are various studies and none are conclusive, given that undoubtedly its consumption is closely linked to the sales of electric vehicles. 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 influence electric vehicles have on the demand for lithium, it is wise to be transparent regarding some of the most significant 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 together short-term, medium and long-term risks. 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.

Thus, the price of lithium has suffered strong corrections in view of the market's development of electric vehicles. In the last two years, the race by car companies to get a hold of the raw material skyrocketed the price by more than 1,200% since 2020 in the Asian Metal Inc index, reaching its peak price per ton last November (86,500 dollars at the current exchange rate), according to Bloomberg. However, the biggest world consumer, China, and its zero-Covid lockdown policy, triggered a considerable fall in demand. 

Against this backdrop, a recent Goldman Sachs note forecasts that the spot price of lithium carbonate will be at $34,000 per tonne in the next 12 months compared to the current average of $53,300, and that the annual supply will increase by 34% to 2025, compared to demand of 25%, as reported by Reuters. In the search for improvements to achieve zero emissions of pollutant gases by the middle of the century and to achieve climate neutrality, any sustainable innovation is a potential investment whose revenues will be achieved in the long term.