Electric vehicle demand to spur global lithium recovery

The pace of recovery in the global lithium market, which has been in the doldrums for two years, is set to accelerate as the electric vehicle (EV) sector transitions from one driven by government policy to one that is driven by consumer demand.

The main catalyst for the recovery is the mandatory vehicle emission regulations imposed in Europe and China. European new EV sales rose by 99pc year-on-year in September while Chinese sales increased by 113pc year-on-year in October, according to financial services firm Morgan Stanley.

The UK government has joined others in tightening policies, announcing a ban on the sale of new petrol- and diesel-only cars from 2030 as part of its goal to achieve net zero carbon emission by 2050. It had targeted 2040 and 2035 for the end of fuel-only new vehicle sales.

Australian lithium producer Galaxy Resources has said that apart from a strong recovery in EV sales in September-October, there has also been an uplift in lithium chemical utilisation rates, it said at the Deutsche Bank lithium and battery supply chain conference.

More competitive EV pricing and performance from improved battery technology are seen as significant factors in moving the market to be led by consumer demand.

Galaxy, which has an operating lithium mine in Western Australia and projects under development in Argentina and Canada, cited research showing that Europe is set to overtake China as the leading EV market. The EV penetration rate in the global vehicle market is seen growing to 13pc by 2025 from under 3pc in 2020. This includes a 30pc penetration rate in Europe and around 6pc in China.

The Perth-based company said that the lithium market is heading for a "looming structural deficit as current pricing is insufficient to incentivise new projects".

Lithium concentrate, lithium carbonate and lithium hydroxide prices have been under pressure since late 2018, and have more than halved since then. Production costs have exceeded received prices for some mining and processing companies, lowering output and sending some producers into administration, suspending operations and putting expansions on hold.

But with the trend towards consumer adoption of EVs set to accelerate, especially when EVs reach the point of having an upfront cost advantage over internal combustion engine alternatives, there is increasing optimism among market participants along the lithium and broader battery materials supply chain.

This optimism is underpinned by the commitment of major automakers to the rollout of hundreds of EV models over the next five years as they adapt to shifting government policy and consumer demand.

By Angus Macmillan