This is why lithium skyrocketed 10x over two years and is critical to national security
Lithium is a metal that is used in almost all electronics today, with a surge in demand over the last two years pushing up the price more than ten times during that time.
The metal’s production is concentrated in only a few countries, with 80% of the global production and refining coming from China. This presents a unique national and economic security challenge.
In fact, U.S. National Security Advisor Jake Sullivan has declared that lithium is “essential” to U.S. economic security and “critical” to national security.
Speaking to Michelle Makori, editor-in-chief of Kitco News at the BMO Global Metals & Mining Conference, Jonathan Evans, CEO of Lithium Americas said that the lithium is ubiquitous.
“Your phones, computers, power tools. It’s ubiquitous in everything we do,” he said.
Lithium Americas (NYSE: LAC) is a lithium exploration company with lithium projects in Argentina and the United States.
According to the company, the Caucharí-Olaroz project in Argentina is advancing towards production and will become the largest new brine operation in over 20 years. The company’s U.S. deposit in Nevada is the largest-known lithium deposit in the U.S. It has received Record of Decision from the Bureau of Land Management and is advancing towards construction.
The spot price of lithium was trading at 48,677 yuan/tonne in March 2020. Two years later, today, it is trading at 493,500 yuan/tonne.
A large part of this price growth has been driven by the electric vehicle industry in recent years.
“To follow the investment that’s been committed already by major automotive companies like Ford or General Motors and the battery companies that supply them…the supply chain in the U.S. today for batteries is about 40,000 tons per year, which is going to go to excess of 400,000 tons per year by 2030,” Evans said. “The entire world supply, today, needs to be replicated just for use in North America in less than 10 years.”
This price growth is only going to continue, Evans said, especially given that global demand for lithium is expected to grow 4,000% by 2040 according to the International Energy Agency.
“When you look at pricing, a lot of times people are very focused on spot pricing in China, which represents the tip of the iceberg, it’s 10% of the market or so, but it’s a leading indicator of where price is going. You have to dig into public company results to kind of average where things are, and they’ve certainly come up quite a bit, and they will come up more. The price of lithium will never be in the range where it was a few years ago,” he said.
Higher prices will inevitably bring more lithium miners online around the world, bringing more “balance” to the supply.
“I think that’s the only way that you’re actually going to get things back in balance over time, over the next decade. You will need more players, you will have more consolidation in the industry, consolidation by larger companies that bring things to bear…large mining companies that can do multiple multi-dollar projects simultaneously [like] oil and gas, chemical companies. They bring a lot of things to the table that current players don’t have today,” he said.
A recent major mining entrant into the lithium space is Rio Tinto, Evans noted.
“I’m going to ignore the spot pricing, but if you dig into company results you’ll start to see where contract pricing is going, and some of the public companies are already showing $20,000 to $30,000 a ton. I think it’s going to stay in that range for quite some time,” he said.
The war in Ukraine has pushed energy prices up, and with that, more interest in electrification, Evans said.
“Energy prices have gone up. You can see that in the U.S., oil’s over $100 a barrel, so there’s a drive and a push towards electrification. I think it also drives that whole concept around regionalization, where North America or Europe has control over its supply chain,” he said.
Evans noted that while the price of lithium has greatly contributed to the price growth of the company, Lithium Americas, like other lithium companies, follow electric vehicle share prices closely.
Even as the spot price of lithium grew 74% year-to-date, the share price of Lithium Americas fell 33% from its November, 2021 highs, mirroring a similar decline in Tesla shares.
LAC last traded at $24.45 on the NYSE.
For more information on Lithium Americas and their partnership with Chinese lithium companies, watch the video above.
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