Lithium - a totally electric demand
Will we be achieving net zero carbon by 2050? Who knows, but without doubt the move is on and gathering pace.
Undoubtedly by now we all realise that electric vehicles will be the gradually dawning stars of the 2020’s.
Everything in the future automation world appears to be going electric – in fact governments are looking to ban non-electric vehicles over the next few decades. France and the UK have already declared that they will stop the sale of cars running on gas or diesel by 2040.
The electric vehicle makers
Whether you like the look of him or not, you have to admit that Elon Musk is a mover and his Tesla electric vehicles will continue to gain interest, whether his windows will be unbreakable or not.
It is not just Tesla that is in production, major names like Volkswagen and BMW have been in the game for quite a long time.
VW has a target of producing 1m vehicles a year within the next three years, compared to Tesla’s target of 500,000 after its new factory in Shanghai has been completed.
BMW has announced that it is set to create 25 new electric vehicles for its range by the end of 2023, half of which will be fully electric, compared to hybrid or combustion engine.
The German car maker sees its sales of electric vehicles by the end of next year to have doubled those recorded in 2019.
Building up a demand
Those leading manufacturers recognise their future and they are creating a demand for the power, portable or not, to make their vehicles operate.
In turn this is building up a requirement for lithium ion batteries, the energy source that is used by electric car makers.
The demand for lithium has been projected to see a 1000% rise in the 2020’s.
Lithium has unique chemical properties, it is the lightest of all metals, is versatile, heat resistant and capable of storing some very substantial amounts of energy in batteries. It is light and soft, able to be cut with a knife, and light enough that it actually floats on water.
The lithium mineral was first documented way back in the 1790’s. It was actually discovered by Johan August Arfwedson in 1817, when he detected the new element when he was analysing petalite ore.
His boss chemist Jons Jacob Berzelius gave the alkaline material the name of lithium, derived from lithos, the Greek word for stone.
Lithium and its compounds have several industrial applications, including heat-resistant glass and ceramics, lithium grease lubricants, flux additives for iron, steel and aluminium production, lithium batteries, and lithium-ion batteries. These uses consume more than three quarters of lithium production.
It is well used in the nuclear fusion industry, for military weapons, and also in medicine - lithium salts are used as a mood-stabilising drug in the treatment of bipolar disorder in humans.
Primary food sources of lithium are found in grains and vegetables, and drinking water also contains significant amounts.
It was not until 1991 when Sony popularised the lithium ion battery that it started to become a vital part of nearly every electronic device. Electronics smartly followed mobile phones in pursuing the new battery over the last three decades.
Advances in manufacturing and engineering have helped to cut cost, while improving the energy density of lithium ion batteries since 1991.
An electric car requires 5,000 to 10,000 times as much lithium as a mobile phone, so now electric vehicles are set to become the true drivers of demand.
As we go forward into the 2020’s we forecast continued demand from mobile devices, as energy storage for electric grids and renewable energy and, most definitely, for electric vehicles.
Using batteries for storing renewable energy will become increasingly important, but the vehicle growth will be more rapid.
Just three years ago only 1.1m electric vehicles were sold, but it is forecasted that that figure will rise smartly to 11m by 2025, then leaping up to 30m by 2030. By that time, it is estimated that some 20% of the global fleet of 230m vehicles will be electric.
By 2040 a third of the global fleet is forecast to be electric, taking a forecasted 55% of new car sales by that year.
From 21% to 46% and much further yet
In 2009 the lithium ion battery accounted for around 21% of all lithium consumption.
By 2017, about 46% of lithium produced went to batteries – more than doubling its share (in a growing market) in less than a decade. Other important uses include ceramics and glass (27% of the market) and lubricating greases (7%).
The annual global demand for lithium, which was up to 40,000 metric tons in 2017, is still in the early stage of ramping up, in fact that year saw more lithium being mined than was being consumed.
The prices set to rise
But we do not need to be mathematical wizards to work out that the demand could match up to production within this new decade.
And that could well see lithium prices increase in proportion, then possibly out of proportion. Prices have nearly tripled since 2015.
World’s reserves of lithium
Lithium deposits around the world are estimated at about 53m metric tons.
In the extraction of lithium Australia is the biggest player, but the continent of South America has the greatest reserves.
How is it extracted
Lithium can be produced from either hard rock minerals, which is faster but more expensive, or from brine, which is a cheaper but longer process. Hard rock minerals were the main source of lithium until the 1990’s, when brines, a cheaper source of lithium then came to the fore in production.
Lithium-containing minerals, which are mined underground or from surface pits, such as spodumene generally found in pegmatites, which are coarse-grained, igneous rocks. There are some 145 minerals that contain lithium but only five are used in extraction, of which some 90% are from spodumene.
Hard rock process
For hard rock minerals, making up two thirds of extraction, the production time is generally around a month from mine extraction to physical separation and then on to chemical processing.
The hard rock is crushed, then the minerals are separated out into a concentrate. Processing, including acid leaching and roasting, then yield lithium-based chemicals.
The brine process
Varying concentrations of dissolved lithium are found in underground saltwater solutions called continental brines.
The brine process, making up one third of extraction, can take from 8 up to 18 months in production time. It is based upon wells being drilled into underground aquifers. They then are used to pump lithium-bearing brine to the surface.
The brine is then moved through a series of surface ponds, which helps to concentrate the lithium and remove any impurities. Through evaporation the concentrated brine is treated to create lithium chemicals, which are then filtered and dried, causing the lithium sulphate to crystallise.
Where is lithium mined
Lithium mining operations can now be found on every one of the world’s continents, barring Antartica. The ‘Lithium Triangle’, which is the area of the world’s biggest reserves covers Chile, Argentina and Bolivia.
The salt bed deposits in Chile have been in production since the 1980’s, those in Argentina in the late 1990’s, while those in Bolivia have only recently gone into production.
Global lithium reserves, at some 16m tons, are around 180 times last year’s production. Chile holds 46.9% of worldwide reserves, China 20%, Australia 16.9%, Argentina 12.5%, while other reserve countries include Bolivia (as yet to quantify), Portugal, Brazil, the US, and Zimbabwe.
By 2018 the global production of lithium was up to 85,000 metric tons, of which Australia made up 60%, Chile 18.8%, China 9.4%, Argentina 7.3%, Zimbabwe 1.9%, Portugal 1%, Brazil 0.7%, Namibia 0.6% and Bolivia 0.02%.
How do investors participate in what is going to be a very expansive market?
There is one company that covers the market – The Global X Lithium & Battery Tech ETF. This fund’s assets have grown from just $68m in June 2016 up to an impressive $478m by November 2019. Its portfolio ranges cover the full cycle of mining, refining, and into battery production.
With some 40 odd equity positions, the top ten of the fund’s constituents include: Albemarle Corporation, Sociedad Quimica Y Minera de Chile, Tesla, Varta, GS Yuasa, Livent, Panasonic, Samsung, Enersys and LG Chem.
Lithium mining companies
The direct investment channels are through taking a view upon the ‘lithium mining companies’ that are scattered across the world – the three biggest are SQM, Albemarle, and FMC Corporation – who account for around 85% of the global lithium market through their various direct and indirect holdings. The three companies, all quoted on the NYSE, could be considered to be an oligopoly having been referred to as the ‘Big Three’.
Other mining companies like Tianqi Lithium, Jiangxi Ganfeng Lithium, Galaxy Resources, Orocobre, Pilbara Minerals, Altura Mining, Sichuan Yahua Industrial Group, Mineral Resources and Jiangxi Special Electric Motor.
Lithium battery companies
The ‘lithium battery stocks’ include some of the top lithium ion battery manufacturers Tesla, Panasonic, Samsung SDI, Toshiba, LG Chem, A123 Systems, BYD, Contemporary Amperex Technology and Johnson Controls.
The vehicle makers
Although not a direct lithium play, investors could also enjoy the ride with the electric vehicle makers – ranging from cars, vans, scooters and motorbikes.
Take a look at:
BAIC, the Chinese car maker;
BMW, which was the first premium car manufacturer to launch an EV in 2013;
BYD, the Chinese batteries and cars maker (in which Buffet has a big stake);
Askoll, the Italian electric motorbike and scooter maker;
Energica, which is also an Italian e-motorbike manufacturer;
Niu, the smart electric scooter company;
Pierer Mobility, the leading European motorcycle and electronic vehicle producer;
Toyata, the Japanese hybrid maker now into electric vehicles; and,
VW, the German car maker that is now expanding its range into electric vehicles.
UK quoted companies into lithium
The UK quoted companies involved to varying degrees in the lithium market include two funds – Gore Street and Gresham House, who are both investing in energy storage projects and systems.
Other London quotes include:
Ilika, which has developed solid-battery technology with several applications, such as IoT, medical devices and for automobiles;
the IP Group, which is involved with a number of early-stage technology companies, like Ceres Power and Nexeon;
Johnson Matthey, which has a special side concentrating upon speciality chemicals for battery fuel cells; and
Versarien, the advanced materials company that is focusing upon developing materials into the battery market.
Ilika (LON:IKA) Price: 23.5p – market capitalisation: £23.68m
This company is based in Romsey in Hampshire and has operations in USA, China and Japan.
It is a pioneer in materials innovation and has been inventing new materials for energy and electronics applications for over a decade, including in the automotive, aeronautical and electronic component sectors.
Global brands such as Rolls Royce and Toyota have long-term collaborations with the company’s development teams.
Using its patented materials invention, the company has developed ground-breaking solid-state battery technology, which it is now licensing technology IP to partners for sensors for the global smart home building, medical, automotive and transportation sectors.
The company’s interim results to end October 2019 will be announced on 23 January.
The IP Group (LON:IPO) Price: 67p – market capitalisation: £709m
This company, which has operations in the UK, the US and Australasia.
It is a leader in intellectual property commercialisation.
Working in partnership, particularly with universities, it finds game-changing ideas and helps to build the businesses of tomorrow.
Its approach is to develop these ideas and the resulting businesses by providing access to business building expertise, capital, networks, recruitment and business support.
It has a strong track record of success and its portfolio comprises holdings in early-stage to mature businesses across life sciences and technology.
Its results to end December 2019 will be released in late March.
Johnson Matthey (LON:JMAT) Price: 2890p – market capitalisation: £5.6bn
This group is a global leader in science that enables a cleaner and healthier world.
With over 200 years of sustained commitment to innovation and technological breakthroughs, it looks to improve the performance, function and safety of its customers’ products.
Its science has a global impact in areas such as low emission transport, pharmaceuticals, chemical processing and making the most efficient use of the planet’s natural resources.
Today more than 14,500 Johnson Matthey professionals collaborate with its network of customers and partners to make a real difference to the world around us all.
The results for the year to end March 2020 will be announced in late May.
Versarien (LON: VRS) Price: 92.5p – market capitalisation: £142.4m
This advanced engineering materials group has developments on so many fronts. It utilises proprietary materials technology to create innovative engineering solutions capable of having game-changing impact in a broad variety of industry sectors.
It is involved with the Spanish company Gnonomat using its graphene products in the development of energy storage technology. A Spanish patent for it was granted in April 2019, with formal collaboration agreements with potential partners in discussion.
Its funding comes, in the main, from Versarien's resources, but it has also been successful in obtaining a grant from the Spanish Ministry of Science and is applying for further grants from the newly formed European Battery Alliance, as well as from other EU sources.
The results for the six months to end September 2019 were announced in the middle of last month.