The price of a vital energy transition commodity has hit record levels

Amidst the furore sparked by high coal and gas prices it was easy to overlook another ‘energy’ related market that has also seen prices hit record levels. Lithium carbonate prices reached a new all-time high in the second half of September on the back of limited supply and high and sustained lithium-ion battery demand in China. Benchmark’s EXW China (Battery) grade of lithium carbonate rose to $24,800 per tonne in the two weeks to 30 September 2021 – an increase of over 200% since the start of the year. The last time prices were at this level was March 2018 when prices were assessed at $24,750/tonne.

According to Benchmark, prices have been supported by tight lithium carbonate supply in China, strong demand from EV manufacturers, but also higher feedstock costs (such as lithium spodumene sourced from Australia):

“Limited available supply within the domestic China market has served to push lithium carbonate prices to these new levels with lithium ion battery demand remaining high and steady after a year of significant growth.

Surging prices in the chemical market have not only been driven by tight supply and strong downstream demand, but also rapidly increasing feedstock costs as Benchmark’s Lithium Spodumene (FOB Australia) grade was assessed up 86% in September as lithium chemical converters scramble to secure available spot material.”

Demand for battery grade lithium carbonate has been supported by a surge in China’s passenger plug-in EV use. The penetration rate rose to a record level of 19.8% in August, approaching the 20% penetration target set for 2025. According to the Centre for Strategic and International Studies, China’s $60 billion in subsidies has spurred the development of over 400 domestic EV manufacturers. The phasing out subsidies has been put on hold until the end of 2022.

Around 40% of the cost of an electric battery is tied to the commodities that go into making it; lithium accounts for approximately 5% of the battery cost, other costs include nickel and cobalt depending on the type of battery. In turn the battery pack represents around one-quarter of the production cost of an electric vehicle. This could potentially mean that the price of electric batteries – that have been on the decline over the past decade – begins to increase, bumping up the overall EV production cost. However, the pace of technological innovation is such that new production processes are likely to mitigate most of the increase in commodity cost.

An increase in the price of gasoline and reports of shortages (at least, here in the UK) may push motorists to find out more about EV’s. But unless the cost of the EV is at or less than an ICE vehicle they will be reluctant to switch. The current boom in lithium prices is both a sign of strong demand, but also the challenge EV manufacturers face in scaling up production. Lithium – one of the vital battery commodities – suffers from the same problem fossil fuels are currently experiencing – a lack of investment in new supply.

Related article: High energy prices: Accelerator or disruptor of the zero carbon energy transition?

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