Battery Factories are Booming
Lithium Producers are Lagging Behind
Extensive production facilities for batteries are being built, particularly in China and Europe. Based on current plans, the number of battery factories in the People’s Republic is expected to roughly double in the coming years. Meanwhile, in Europe new production capacities are being created and existing ones are being expanded - massively. This comes as little surprise as the demand is enormous.
According to the Financial Times, LG Chem alone, which recently became the world market leader ahead of CATL, a Chinese manufacturer, reports an order backlog of $125 billion and sees itself working at full capacity for the next five years. The South Koreans want to expand the capacity of their factory in Warsaw, Poland, from the current 6 gigawatt hours (GWh) to up to 70 GWh.
CATL, the world's second largest battery manufacturer, wants to achieve a capacity of 14 GWh in Erfurt, Germany, from 2022. However, in the longer term, the company also considers 100 GWh possible. This would be roughly four times the size of the gigafactory of Tesla and Panasonic in Nevada, the world's largest production facility for lithium-ion batteries to date. The list could be continued.
Europe is becoming a game changer
Europe is primarily responsible for the current surge in demand for electric cars and thus for batteries. In addition to generous purchase premiums for cars powered by lithium-ion batteries, ever-stricter environmental regulations are also being imposed on the continent. As a result, starting next year, excessive CO2 emissions from new car fleets will be punished with stiff fines.
Car manufacturers will only be able to reduce average CO2 emissions to the necessary extent if they sell a significant number of electric cars. This is because zero-emission vehicles are considered twice in the calculation. This also applies to plug-in hybrids but here the effect is much smaller because they are still driven by a gasoline or diesel engine. Against this background, UBS, a Swiss investment bank, estimates that the market share of purely electric cars in Europe will almost double from its current 4% to 7.5% next year. Plug-in hybrids are expected to grow from 5% to 7.5%.
According to UBS, this means that in Europe alone the demand for rechargeable lithium-ion batteries will rise from 20 to 46 GWh this year. If the forecast is correct, the old continent will overtake China this year with analysts expecting demand in China to reach 45 GWh. UBS expects global demand to rise by almost two-thirds to 205 GWh. In 2022, it is expected to reach 305 GWh, with Europe accounting for more than a third of this figure, according to the forecast.
While battery factories are shooting up, lithium producers are putting on the brakes with the large manufacturers such as Albemarle, SQM or Tianqi recently postponing major new or expansion projects. One reason is that global car sales collapsed with short notice due to corona. This also applies to electric cars and plug-in hybrids, which meant that fewer batteries and thus less lithium were needed in the short term. Demand fell by around 10% to 20%. In the meantime, this has led to rising inventories.
The market is turning
Inventories built up in recent months are estimated to total 20,000 tonnes of lithium carbonate equivalent (LCE) worldwide - with current annual production of around 300,000 tonnes of LCE. Derived from the expected demand for batteries, the demand is estimated to rise to 450,000 tonnes of LCE already next year. By 2022, the demand is expected to exceed 600,000 tonnes and a year later it will be as high as 900,000 tonnes. It is foreseeable that the manageable supply surplus will soon turn into a considerable deficit. This is because the supply comes in large part from destocking, which has recently become increasingly evident. The expected bottlenecks should then drive up the price of lithium. The share prices of the major lithium producers have already anticipated this development. Albemarle, the world’s largest producer, has already risen by more than 60% since the low in March. Livent has even increased by a good 80%. At SQM, the second largest lithium producer in the world, the corresponding increase is around 90%. All this even though the price of lithium has "still" not risen at all.