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Commodities Corner: Strong demand for EVs look to contribute to a decade or more shortage for lithium

Electric vehicles have seen strong sales growth in the past two years, contributing to a significant climb in prices for the lithium needed to build the batteries that power them. The moves raise concerns for a shortage in supplies of the commodity that may last a decade or more.

Original equipment manufacturers — those producing parts for end users — are “all-in on electric vehicles,” or EVs, said Keith Phillips, CEO of Piedmont Lithium 
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The OEMs and battery companies are investing tens of billions of dollars in battery plants, he added. “That is a sea change from just a couple of years ago.”

In a February report, market consultancy AutoPacific forecast fully electric light-vehicle sales in the U.S. of 669,200 units in 2022, up 155% from 262,000 in 2020.

The EV market accounts for almost 80% of lithium-ion battery demand, according to a report from Jiayue Zheng, a consultant at Wood Mackenzie, a unit of Verisk Analytics. The lithium-ion battery market encountered shortages last year because of “thriving” EV market demand and rising raw-material prices, she says, and Wood Mackenzie believes that battery supply won’t meet demand until 2023.

Phillips, meanwhile, expects OEMs and battery companies to experience dramatic shortfalls in the lithium they’ll need to make batteries because it takes more than 10 years to bring a natural-resource project from “idea to production,” and most lithium project developers slowed down during the 2018 to 2020 bear market.

President Joe Biden on Thursday will announce he’s using the Defense Production Act to secure U.S. supplies of materials needed for a clean-energy economy, senior Biden administration officials told reporters. The focus will be on procuring tools to build batteries in the U.S. that will go into electric vehicles.

Australia, the world’s largest lithium producer, forecasts a tight lithium supply-and-demand market in 2023. In a quarterly report issued in December, it said world demand is estimated to rise to 724,000 metric tons of lithium carbonate equivalent by 2023, from 486,000 metric tons in 2021, as “global EV uptake rises,” driven by government measures, lower vehicle prices, and increasing vehicle model choices. The report also sees world lithium production at 821,000 metric tons in 2023, up from 485,000 metric tons in 2021.

“There have been some big increases in [lithium] supply, but much bigger increases in demand,” said Cameron Perks, senior analyst at Benchmark Mineral Intelligence. That is fed by “emotional” and economic decisions to buy an electric vehicle, he says, noting that an emotional decision is partly based on the idea that owning an EV is a status symbol, as well as a way for people to reduce their carbon footprint.

The recent run-up in oil prices has sped up demand for EVs, he said. U.S.
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and global benchmark
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oil futures settled at their highest levels since 2008 on March 8, contributing to a rise in average retail U.S. gasoline prices to $4.331 a gallon on March 11, the highest on record.

EV prices have also climbed, due to general inflation, said Perks, but also because of the rise in costs for lithium and other raw materials. For lithium contracts, there are “cost pass-through mechanisms in place that essentially mean that the higher lithium prices are being handed down to consumers,” he said.

The February reading for the lithium price index, which is tied to the global weighted average price for lithium carbonate and hydroxide — two primary lithium chemicals — stood at 869.2, up 88% so far this year, and up by a whopping 441% from the same time a year ago, according to data from Benchmark Mineral Intelligence.

“I could not be more bullish” on the outlook for lithium, said Piedmont Lithium’s Phillips. “We expect [EV] demand to grow dramatically,” given that these cars are smoother, quieter and faster, and far less expensive to fuel and maintain, he said. “As EV demand grows, lithium demand will grow, and we expect shortages for the next 10 [to] 15 years, at least.”

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