Outlook 2023
'Demand is really defensible': Chris Berry on lithium's next act
(Kitco News) - Lithium is up tenfold since the start of the decade, according to Benchmark Minerals Intelligence assessment, but where is the metal headed next?
In December Kitco spoke with battery metals expert Chris Berry who heads House Mountain Partners.
Interview is edited for clarity.
KITCO: Where are we headed after the big run-in lithium prices?
BERRY: A little bit of softening of the price will not be a huge surprise. To your point, depending upon when you started tracking lithium prices, I mean lithium is up 10x or 9x. I would argue that the likelihood that we see a 10x in lithium pricing over the next two years just like we've seen over the previous two years is obviously very unlikely.
I would argue that in 2023 lithium prices are likely to stagnate and whether we're talking about battery grade lithium or battery grade carbonate or spodium concentrate, that's not a bad thing, especially after the run we've had. I do not think this is sort of a classic you know pump-and-dump cycle. I think the demand overall is really defensible and very strong. I think that's probably why I wouldn't be at all surprised to see lithium really range bound in 2023 from a price perspective. Maybe there's a little bit of downside, but by no means will we see the collapse that some banks are forecasting.
KITCO: Lithium has had runs in the past. Why is this run different?
BERRY: This is the third lithium cycle that I've lived through in my career. All the cycles have one thing in common: they have a definite beginning and end. I would argue that what is different in the current cycle is that lithium demand is growing at 20% per year. I think it's actually going to grow at 20% per year all the way out to 2030. In previous cycles lithium was really only growing demand at about 5% to 6% per year. This isn't a traditional investment cycle driven by investors and corporations. Governments are involved.
KITCO: Carmakers have really shifted the demand picture.
BERRY: That's absolutely right. Four or five years ago automotive manufacturers didn't really think they had to worry about lithium accessibility. Now obviously they have gotten religion—for lack of a better phrase. They realize this is a very important issue, and they're willing to make multi-million or multi-hundred-million-dollar bets over the course of this decade to lock in supply. The other reason I think why lithium is important is when you think about the cost of that lithium, even at today today's spot prices of eighty thousand dollars, the cost of that lithium in an electric vehicle is maybe 14% to 15% of the cost the overall EV, so it's not a make-or-break thing. While the automotive manufacturers don't want to pay current lithium prices, they are willing to do that to lock in supply for the next five to six years because the lithium is a relatively small overall cost of the electric vehicles.
KITCO: How important was the Inflation Reduction Act (IRA) to the battery metal space?
BERRY: Vital. You would not see any of the battery metals—not just lithium but any of the battery metals—get built as quickly as it's going to be built without the Inflation Reduction Act. You also have the bipartisan infrastructure act which has dispersed about $2.7 billion dollars across a number of different battery technologies and infrastructure plays, never mind what's happening in China and the European Union with their own similar programs.
The one challenge with the IRA is that it doesn't directly address mining or mine permitting, so there's still this mismatch in the supply chain where you can build a lithium conversion facility or even a battery gigafactory in a matter of two to three to four years depending upon the size and the capacity but you're still stuck with it taking anywhere from seven to 10 years to bring a green fields battery metal supply on stream here in North America, so that's a core issue in terms of accelerating this transition.
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