Lithium has been claimed to be the “new oil” with a new dedicated ETF recently launched to take advantage of the investor interest in this area.Lithium which was virtually unused in any application until the 1990’s come into prominence after Sony introduced the first Lithium based batteries.Since then the usage of Lithium has grown by leaps and bounds with the production of this metal virtually doubling in the last 3-4 years and prices going up to $7000/ton.
Why Lithium Usage has skyrocketed
Lithium usage has increased exponentially with the proliferation of electronic devices which use lithium batteries.A common home might have an average of 10 Lithium Batteries in devices such as cell phones,laptops,cameras etc.However the main driver of Lithium Demand comes from the advent of Electric Vehicles.These automobiles use a hundred times more lithium than a cellphone as the power requirements for a vehicle are considerably larger.A slew of companies have grown developing innovative Lithium Ion Technologies to power EVs.A123 Systems,Electrova,Altair,Ener1 are some of the prominent companies while old stalwarts like Panasonic,Toshiba,LG are also making huge investments into building Lithium Battery factories.
Geographical Distribution of Lithium
Lithium deposits are mainly mined from brine deposits found in arid deserted areas primarily found in South America.Chile is the largest producer of this mineral with estimated 35% of the world’s production and the biggest reserves.Argentine and Bolivia are also suspected to have big reserves though Bolivia produces very little currently.China is also a big producer but with higher costs,recently is deposits have been discovered in Tibet.USA which used to be the biggest producer 10 years ago is a marginal producer now.Estimates of Lithium reserves range from 10 million tons to 100 million tons depending on who you listen to.The size and the price it can be extracted is not known correctly since lots of countries like Russia,China don’t reveal the reserves.
Chile the only country to restrict Lithium Mining
Chile is the only country in the world to restrict mining of Lithium putting in quotas for companies.It has made Lithium a strategic commodity preventing large scale extraction.SQM and Rockwood Holdings are the 2 companies which have leases on Chile’s “Salars” to mine lithium.These producers are the largest Lithium companies in the world and have seen their share prices continuously moving upwards as interest goes in the “new oil”.SQM is a Chilean owned company which has sizable agricultural and mining interests.It has asked the government to increase its quota which is already 30% of the world’s production.Chile has been moving towards opening up the Lithium Sector to allow more companies in .Toyota has a JV to mine lithium in Chile to safeguard supply to its future EVS.
Is “Peak Lithium” Possible in the Future
Some analysts have said that massive growth in the EV industry will lead to a situation of “Peak Lithium” and shortages in the near future.This will lead to much higher prices,however this has been refuted by companies like SQM which have said that potential global reserves are 100 million tons enough to power 2 billion vehicles.Though I can’t comment on the reserves situation,I don’t think the “Peak Lithium” is a possibility.The reasons are as the following
- Substitutes to Lithium Batteries like NiMH already exist and are providing a stiff competition
- Electric Vehicles are not economical today and may not be so for the next 10 years.The whole media hype might die down just like 2000
- As Prices move higher,Lithium extraction from wastewater and other sources will become feasible leading to decreases supply
- Newer Deposits are sure to be found as prices increase.Chile has 10 more salars,Bolivia has huge unknown deposits,China and Russia may also announce huge discoveries.