A recently released report aims to provide a comprehensive understanding of the dynamic lithium sector, which has garnered significant interest from investors. The report, published as part of a series by RFC Ambrian, delves into the current and future trends within the lithium industry, shedding light on its potential risks and opportunities.
The research report highlights that while the lithium sector has been relatively well-covered by the research industry, it lacks in-depth primers on the industry as a whole. To address this gap, the report presents a detailed analysis of the global lithium commodity market, with a special focus on the lithium supply chain and its associated developments. The intention is to equip readers with an informed view of the industry’s prospects.
The lithium sector has gained substantial momentum, especially with the surge in demand for lithium-ion batteries used in electric vehicles (EVs). Over the past six years, global mine production has witnessed a staggering growth of over 230%, driven primarily by the increasing adoption of EVs. The report projects continued demand growth for the next two decades, buoyed by optimistic forecasts for global EV demand and the establishment of new battery factories.
Amidst this rising demand, the industry faces the challenge of a projected supply deficit of 784 kt for 2030, as per recent publicly available forecasts. This substantial deficit relative to the market size indicates the likelihood of higher lithium prices to incentivise new supply or potentially curtail some demand.
However, this impending supply shortfall has spurred interest from various stakeholders, including banks, investors, governments, battery, and auto manufacturers. Banks and investors seek promising returns, governments aspire for increased tax revenues, job creation, and industrial benefits, while battery and auto manufacturers aim to secure a stable lithium supply to meet their own demands and maintain acceptable price levels.
To bridge the projected supply gap, the lithium mining industry has experienced a rapid surge in activity, leading to significant growth in new lithium exploration, development, and mine supply projects. In the pipeline, eight new mines are expected to begin production this year, followed by an additional 11 under construction set to commence production in 2024 and 2025.
Despite the current forecast of a supply deficit in 2030, the report challenges the consensus view by suggesting that the deficit may not be as substantial as anticipated. The research emphasises the potential underestimation by the market of new supply sources that could become operational by 2030.
The report also delves into the various risks impacting supply assumptions, including the adoption of large-scale direct lithium extraction (DLE) technology, resource nationalism, and government and industry financial and structural support. DLE technology shows promise for extracting lithium from continental, geothermal, and oilfield brines, offering benefits such as reduced environmental impact and shorter lead times to production.
Additionally, the report highlights several dynamics influencing the lithium industry, including merger and acquisition activities, increased global investment in lithium refining, and recent price fluctuations caused by past oversupply.
In conclusion, the lithium market remains a rapidly evolving landscape, with demand projections and supply dynamics subject to change. While a supply deficit looms on the horizon, the industry is poised for growth. Nonetheless, fostering early-stage exploration projects will be crucial to ensure long-term capacity in the lithium sector.
The second part of the report series, slated to focus on lithium explorers, developers, and producers, is expected to offer further insights into this evolving market and its anticipated M&A trends.
The full report is linked here