Accelerating EV growth drives lithium sector

Drilling at the Coolabah site. Image: Strategic Metals Australia.

A building sense of anticipation has surrounded the lithium industry for a while now as the global transition to electric products comes to fruition.

The battery-making commodity hasn’t, however, had an easy ride since the apex of 2018 when the lithium price had companies and investors salivating.

Since then, the price of lithium has slid as the sector in China has come under pressure from weaker macro environment sentiment, with the United States and Chinese governments failing to agree on the current trade dispute.

This coincides with weaker than expected economic growth, alongside tighter credit and financial liquidity across a number of industries, according to lithium producer Galaxy Resources.

Lithium prices have also continued to soften as battery materials and cell manufacturers have undertaken significant destocking while maintaining a low inventory.

The 2016-2018 period saw a substantial increase in lithium prices that incentivised a proportion of new supply. Since its drop at the beginning of this year, however, there are differing opinions on whether lithium will live up to expectations.

For many, the future is robust, with Galaxy telling the market that lithium is in a league of its own in regard to expected demand growth, which represents a compound annual growth rate of 15 to 20 per cent through to the middle of next decade.

This is expected to be driven by the growth of electric vehicle (EV) production and sales across China, Europe and the United States, which have already shown signs of promise.

An earlier than expected announcement from the Chinese Government to transition from the China 5 to China 6 emissions standards has led to a rushed destocking of traditional internal combustion engine (ICE) vehicles by original equipment manufacturers (OEMs) and distributors.

Lithium Australia managing director Adrian Griffin says this is an important aspect to consider, given the pervasive sentiment of countries banning ICE engines and turning to EVs.

“Look at the EV demand, within that, countries that have said they are going to ban ICE engines include China, India and most of Europe,” he says.

“If you look at current vehicle production through to around 2030, where most bans converge, you are looking at a large number of vehicles that need to be produced on an annual basis.”

As Griffin points out, in order to meet the demand for vehicles that replace ICE engines, a large amount of lithium carbonate will need to be produced.

It begs the questions to the lithium sector, is the supply for the commodity able to match the rapidly accelerating demand?

The main driver has been lithium-ion battery applications, given lithium is the core material used in the cathode of such batteries, while also being used in the separator material.

Traditionally, consumer electronics represented the largest subset of the lithium-ion battery bucket, but this has now been exceeded by the fastest growing end market – EVs.

The China Association of Automobile Manufacturers reported that production and sales of battery electric vehicles in the second quarter of this year totalled 289,000 (a 41 per cent year on year increase) and 283,000 (35 per cent growth year on year), respectively.

It comes as China clamps down on its environmental regulations, having announced the implementation of new vehicle emission standards in numerous provincial regions, including Beijing, Shanghai, Tianjin, Hebei and Guangdong.

Starting July this year, sales and registrations of new vehicles and all existing ones in these regions have to comply with some of the strictest rules on automobile pollutants.

These include substantially fewer pollutants such as nitrogen oxides and particulate matters, as well as introducing limits on particulates and ammonia.

Lithium Australia’s Brisbane lab.

 

Despite the perceived market softness in China, Galaxy has maintained its confidence in companies within the EV supply chain, given the deployment of capital within the sector.

Notably, Galaxy has told the market the significance of Chinese conglomerate Evergrande’s $US23 billion ($32.7 billion) investment in building three manufacturing facilities for EVs, batteries and electric motors in Guangzhou in the Guangdong province.

It’s not just China that will require lithium to drive its transformation, as Europe continues to emerge as a high growth region for EV demand this year.

The first five months of 2019 saw plug-in vehicle registration increasing 55 per cent year on year to 227,300 units, while plug-in vehicle deliveries reported in the United States in the second quarter of 2019 were 87,450 units, a 27 per cent increase year on year.

Automobile companies are catching onto the trend too, with BMW announcing it will be accelerating its electrification plan by two years with the launch of 25 EV models by 2023.

Volkswagen reciprocated this sentiment, announcing it plans to install 36,000 electric car charge points across Europe by 2025 and a $1.5 billion investment in Swedish battery manufacturer Northvolt.

It seems the stage is set for an EV boom and Australian mining companies have responded by ramping up exploration to discover new lithium deposits.

Predominately, Western Australia has dominated the lithium landscape in Australia, however, a recent discovery by project generator company Strategic Metals Australia (SMA) in North Queensland highlights the potential the country’s landscape offers.

The lithium province is in the Georgetown-Forsayth area, and consists of multiple pegmatites and lithium mica replacement mineralisation.

SMA’s discovery “opens up the potential for Queensland to become a significant miner and processor of Lithium salts for battery manufacture in the state,” according to exploration director Bradley Crighton.

He tells Australian Mining that the discovery is “quite significant for the east coast of Australia because there’s no other major lithium resources on the east coast, all are in Western Australia.”

The Forsyth region has previously been known for gold mining, however, a few larger companies have come through and identified lithium bearing pegmatites.

This provides the opportunity for spodumene to be extracted from pegmatites, a lithium mineral known for its high lithium content.

While spodumene used to be the primary source of lithium production, the industry transitioned to extracting the commodity from brine given the significantly lower operating costs.

Exploding demand for lithium has many companies in the industry turning back to spodumene given the lower capital costs and shorter time to production compared to brine operations.

“Spodumene from a geological perspective will be more popular if it’s high grade, it’s about the economics of it, it also makes mines more profitable,” Crighton says.

Griffin alludes to a similar response: “If you are looking at where people are investing their money, larger brine producers are investing in spodumene,” he says.

The rapidly growing desire from China for spodumene is exemplified by Galaxy sending 100 per cent of spodumene offtake volumes there in 2019, a shift from last year when the company sent shipments to Korea and Japan as well.

In a noticeable attempt to match the booming Asian demand for battery minerals, Crighton tells Australian Mining the significance of the Imperium3 Townsville consortium.

With construction expected to start next year, the project will be Australia’s biggest lithium-ion battery plant with annual production targeted at 15 gigawatt hours.

The mammoth $2 billion project was heavily backed by the Queensland Government, which provided $3.1 million for a feasibility study into the project, reinforcing the potential it sees in the lithium sector.

It marked yet another sign of Australia’s lithium industry frantically ramping up production and processing of the materials as it attempts to keep up with the global battery revolution.

While new discoveries and increased exploration seems to be permeating the sector, it begs the question of whether it will be enough to match the undeniable craving that will only grow.

This article also appears in the September edition of Australian Mining. 

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