Several months ago, Chile’s second-largest lithium producer, Albemarle Corp. (NYSE:ALB), warned that global supplies of lithium were on course for a major shortfall in a few years’ time if prices fail to reflect the costs of funding massive expansions amid the EV boom. Specifically, ALB highlighted the chasm between discount-hunting EV manufacturers and lithium producers who were unable to meet growing demand at persistently low prices. But maybe Eric Norris, operations manager for Albemarle’s lithium business, rushed his fences: Lithium carbonate prices have nearly tripled after sinking to multi-year lows of $29,800 per ton in July 2020. Lithium carbonate is a critical ingredient in the manufacture of Lithium-ion batteries for electric vehicles.
And now another giant lithium producer is dancing to the same tune.
Jiangxi Ganfeng Lithium, the world’s largest lithium mining company with a market capitalization of $19 billion, says that lithium prices will continue to rally as lithium production struggles to keep up with the massive demand for EVs. The Chinese company has some decent credibility–after all, it counts leading EV makers such as Tesla Inc. (NASDAQ:TSLA) and BMW (OTCPK:BMWYY) among its customers.
Ganfeng Lithium reported net income of 1.025-billion yuan ($156-million) in 2020, a huge improvement on 2019 partly due to gains on the fair value of financial assets such as equities but also due to strong demand for battery-grade lithium.
Investors started pouring into lithium years ago, anticipating the very same supply crunch that Ganfeng Lithium and Albemarle are warning is now looming. They jumped the gun then, partly out of poorly timed over-enthusiasm, and partly because the logic ran like this: Any new lithium mines that could contribute to the EV battery onslaught would take years to bring online, from scratch–so best to get started in advance.
Now, with the EV boom squarely in the front view mirror, and with battery gigafactories promising to be heavy-hitting purchasers, we can finally see the much-anticipated supply crunch forming.
Battery-grade lithium carbonate prices started to buck a three-year downturn during the second half of 2020 thanks to robust EV demand roared back from the coronavirus. Lithium carbonate prices have gained 67% so far in 2021 and 224% in the past 12 months.
That’s mainly thanks to the postponement of lithium project expansions in South America–due to previous demand forecasts as well as the impact of the pandemic. This is expected to slow down the short-term supply of the lithium compound and improve pricing, according to Ganfeng.