LITHIUM: TIME TO TAKE POSITIONS IN THE FACE OF AN EXPLOSIVE DEMAND

 LITHIUM DEMAND AND SUPPLY .

As per published Statistical data, the present limited oversupply of about 30,000 metric tons, is the result of a very temporary altered demand of 720,000 metric tons and a total supply of 750,000 metric tons.

In first place, Europe had a decline of car’s sales in key markets, including Germany (-6.2%), Spain (-4.7%), Italy (-3.7%), and France (-1.5%). Within total sales the share of battery-electric cars decreased to 13% from last year's 13.9%, while hybrid-electric cars surged to 29% from 24.4%. The combined market share of petrol and diesel fell to 47.8% from 51.8%.

The natural demand of electric cars has been altered due to different factors such as the European increase of tariffs on China-made EV imports (new duty ranges from 17.4% to37.6%). However, the first quarter of 2024 ended with a total of 332,999 new battery-electric cars registered, indicating a slight 3.8% increase from the same quarter in the previous year.

Second and maybe most important. is the discussion around the ban on the sale new diesel and petrol cars from 2035. This includes liquid petroleum gas or LPG. The intention is to drive the transition from (ICE) to electric vehicles (EVs) to reduce the effects on climate change. 

The UK government ban of new diesel and petrol cars sale, was initially set to begin in 2040, the initiative was later brought to 2030, and then ultimately delayed to 2035. Hybrid vehicles sales will also be banned, from this date since they rely heavily on petrol or diesel for longer journeys.

In February 2023, also the EU voted to approve a new law banning the sale of petrol and diesel cars by 2035; however, governments with important automotive industries try to delay or limit this ban.

Despite the noticeable shift towards EVs, some European consumers are not ready to turn away from ICE cars. While we’re seeing a clear decline in demand for diesel models, some drivers are opting for gasoline alternatives, rather than switching to electric.

The challenges associated with electric vehicles include the inadequate charging infrastructure and higher costs; the average selling price of an electric car in Europe is approximately €65,000 (which doubles the price of ICE models); which is of course also related to the previously mentioned tariffs increases on EV imports.

It is interesting to observe the trend in some petrol producing countries such as Norway (where 95% of all cars sold are electric), Sweden (60%), the Netherlands (30%), while in France and the United Kingdom 25% of all cars sold are electric.

 THE EXPECTED DEMAND EXPLOSION

In 2023 the global electric car sales reached almost 14 million, which represented a 35% increase from 2022. This growth meant that the global electric fleet rose to 40 million in 2023.

China, Europe and the USA are the largest markets for electric vehicles and together account for around 95% of all sales in 2023. The sales figures were: China 8,1 million units, Europe 3,2 million units and USA 1,4 million units.

By the end of 2024 the sale of 17 million units is expected, accounting for 20% of total car sales: and at the same time there is great growth potential, especially outside the core markets of China, Europe and the USA.

An acute shortage of lithium will occur very soon, the European electric vehicle fleet for example is supposed to reach 40 million by 2030 – a massive increase from the current approximated 8 million EVs roaming the European roads today, the same can be expected in the other markets reported.

From one side lithium producers will face strong opposition for ecological reasons (as Rio Tinto now in Serbia), however the present estimation of current and future production and demand shows very worrying figures:

The total production of lithium in 2022 was, as mentioned, 750,000 metric tons, by 2030 and if there is a full compliance of all projected facilities, the production is expected to reach a total 1,640,000 metric tons an almost 119% increase.

The lithium demand on the other hand, will pass from 720.000 tons in 2022 to approximately 3,060,000 metric tons in 2030, approximately a 325 % increase.

Coincidently Jaganmohan (2024) stated recently: “In 2030 the global demand for lithium is expected to more than quadruple the demand in 2022, from 720,000 metric tons to a forecast 3.1 million metric tons. The forecast global lithium supply in 2030 is not expected to meet the demand, whereas in 2022 there was a global lithium market surplus.”

The lithium EV batteries should be changed between 5 to 8 years, so even old as well as new cars will need much more batteries very soon; by meantime, no other alternative seems feasible around.

 AND THE MARKETS?

 Little Red Riding Hood sang when the wolf was not around: - everyone dances - wolf are you 🐺 ?

Even though it should be considered a very strategic commodity, the lithium markets lack the transparency of other commodities as oil. Physical demand and futures are manipulated in darker process where some buyers push to downgrade spot prices (exploiting the momentaneous oversupply), to compensate for higher tariffs or other production increases.

Other important automotive industries try strategically to secure lithium provision for the long run, contracting with main providers as Albemarle, SQM and others.

At the same time, stock options traders have played their game selling short and downgrading solid companies’ values.  

The near future will surely turn this situation around. As an observer or trader, you must be attentive and prepared since the wolf 🐺 (the real market) will make his appearance very soon.

ha-ha. 😄 😄