The Chasm Between Future Lithium Supply and Demand is Widening

Currently, there is still a slight oversupply of lithium in the market which was aggravated by the worldwide temporary corona-related shutdown of the automotive industry. In response, there are a number of lithium producers who are postponing investments in new capacity and expansion projects or even cancelling them altogether. For example, SQM, the second-largest lithium producer in the world, has postponed the expansion of its production in the Chilean Atacama Desert from the end of 2020 until late next year. There, SQM - like other lithium producers - is exploiting a huge salt lake which will have a deleterious impact on the environment.  

The example of Wesfarmers is also illustrative: in view of the corona crisis, the Australian company has also postponed an investment decision on the Mount Holland project from this year to next year. Albemarle, the world's No. 1 producer, has also adjusted its plans and revised an agreement to purchase the Wodgina lithium mine from Australia's Mineral Resources. Tianqi from China has postponed the commissioning of the first phase of its flagship lithium plant in Kwinana for the time being. The list could go on.

Automotive industry revives

Against this backdrop, the car manufacturers have already put their factories back into operation. Especially in China and Europe, strongly increasing sales figures for electric cars are expected. In the People's Republic, the main reason for this is the extension of subsidies by two years.

In Germany, the purchase premium for e-cars has now even been raised from 6,000€ to 9,000€ and there could be even more to come. Renault has just announced that it will increase the subsidy by another 1,000€. Then there will be 6,000€ from the German state and another 4,000€ from Renault when buying an e-car. For example, a Renault Zoe, an e-car, with the basic equipment costs less than 22,000€, plus the rent for the battery. Over at BMW, the subsidy is effectively increased to 12,000€ if the buyer simultaneously trades in their old BMW diesel.

At the same time, the German government plans to invest 2.5€ billion in the expansion of charging station infrastructure, in the promotion of research and development in the field of electromobility and in battery cell production.

Not only Germany but all of Europe is now pushing the topic of electromobility. Since the beginning of the year the limitation of CO2 emissions has been in force. However, fines will only be due from 2021 onwards if they are exceeded. Put simply, fleets of new cars may only emit an average of 95 grams of CO2 per kilometer. This means that the cars may not consume more than 3.6 liters of diesel or 4.1 liters of gasoline per 100 kilometers. This cannot be achieved without the massive use or sale of e-cars.

According to a study by the management consultancy PA Consulting, this could lead to fines of up to 4.5€ billion at Volkswagen alone. This also explains why VW, in Zwickau, is doing everything in its power to ramp up production of the ID.3 e-car. However, experts expect that the car companies will only really start to boost sales of e-cars next year. This is because the exhaust emission values from the current year form the basis for future percentage reductions. The more CO2 the cars blow into the air this year, the smaller the absolute reductions in the future; an unintended consequence of the new policy.

Massive increase in sales of e-cars

In view of these extensive subsidies and punitive measures, analysts from Cairn Energy Research expect the number of e-cars sold to increase by more than 33% worldwide in the coming year, breaking through the three million mark for the first time.

The research house Benchmark Mineral Intelligence assumes that the supply side cannot react fast enough to an increasing demand. That seems foreseeable. Car manufacturers are currently ramping up their production capacities and this will happen much faster than bringing a lithium deposit into production - especially if investment decisions are postponed further and further. This will clearly lead to rising lithium prices and to high profits for those companies that build up capacities in time.

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