Lithium market weaknesses exposed by COVID-19

The COVID-19 health crisis has left the lithium market on pause while exposing its weaknesses. 

“The worldwide economic recession, the supply chain allocation and the government’s lack of action to attract investment to Latin America are currently affecting the lithium market,” said Emily Hersh, managing partner at US consultancy firm DCDB Group, during the COVIDMIN 2020 web conference. 

Lithium demand has been growing exponentially in recent years due to the electric vehicle industry, but COVID-19 has seen it grind to a halt. 

“We’re facing an uncertain scenario because growing demand for a new technology means people changing their habits to choose a new product. Today, people aren’t thinking of buying new cars,” Hersh told the event.  

According to Hersh, the lithium market tripled in size between 2015 and 2017 and will grow 500% in the next 35 years. In the short term the market will face oversupply, but a lower supply scenario is expected in 2023-25 due to the lack of financing to build new projects or expand those that exist.

Chile and Argentina currently have lithium projects in production, but the region still needs policies that support the growth of the industry, she said, as well as projects capable of producing chemicals for electric vehicle batteries. 

“Lithium production is driven by stable chemical components that could be used to produce safe batteries, but if no investments are made supply will be lower than demand,” Hersh said.  

Lithium battery demand could drop 8% this year, but a recovery is expected by 2025. 

Regarding the supply chain and the discussion on how to move it closer to the region, Hersh said the first step is to focus on mineral extraction and chemical production. 

“Without mineral extraction and chemical production you can’t reach value within the supply chain. Lithium added-value means producing the chemicals needed,” she said. 

To reduce the lithium market’s exposure to China, the US must invest in the production of lithium’s chemical components and in advanced processing techniques. Europe will remain focused on environmental qualifications of products through the reduction of the carbon footprint, she said.

Post COVID-19, Latin American producers would have to choose who to partner with between the US, Europe and China. 

“The US is setting rules but without capital allocation, while China is writing investment paychecks,” Hersh said.

Photo credit: Millennial Lithium