[Complete Battery Mastery](39) The Fall of Lithium, Once Called 'White Petroleum'... Has It Hit Bottom?

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Jiang Weiping, the founder and chairman of China’s Tianqi Lithium, announced his sudden resignation on April 29. His daughter, Jiang Anqi, was named as his successor. Born in 1955, Jiang Weiping established Tianqi Lithium in the early 2000s. Tianqi Lithium’s business rapidly expanded alongside China’s electric vehicle market and was recognized as one of the two major pillars of China’s lithium industry along with Ganfeng Lithium. The company aggressively expanded into the global market, including a $4 billion (approximately 5.4 trillion KRW) investment in Chilean mining company SQM.

However, since last year, lithium prices have plummeted, causing losses to snowball. In the first quarter of this year, Tianqi Lithium reported a loss of 3.9 billion yuan (approximately 735.5 billion KRW). The aggressive investment in SQM turned out to be a boomerang.

After soaring with the boom of electric vehicles, lithium prices have collapsed and have yet to recover. According to the Korea Mining Industry Promotion Corporation’s Resource Information Service, the price of lithium carbonate peaked at 581.5 yuan per kilogram in November 2022 before sharply falling. Although lithium prices briefly rebounded last year, they declined again and stood at 103.5 yuan as of May 23 this year. This represents an 82% drop compared to the 2022 peak, a level similar to the price in August 2021 when lithium prices first started to surge.

Lithium is a key raw material used in electric vehicles, and as EV sales surged, concerns about supply shortages caused prices to skyrocket. Lithium was highly valued as "white petroleum," but within just over a year, prices plunged due to a slowdown in EV growth and inventory burdens.

The pain caused by falling lithium prices is not limited to lithium mining companies like Tianqi Lithium. Domestic battery-related companies, especially cathode material manufacturers, have also been hit hard.

Cathode material companies sign contracts with battery cell manufacturers linking mineral prices such as lithium and nickel to product prices. There is a time lag between mineral prices and product prices. When mineral prices rise, companies benefit from the lagging effect by selling products at higher prices using raw materials purchased at lower costs.

However, when mineral prices fall, companies face losses because they bought raw materials at higher prices but must sell products at lower prices. This is called the reverse lagging effect. Domestic cathode material companies that stocked up heavily when lithium prices surged have been experiencing this reverse lagging effect since the second half of last year.

How Are Lithium Carbonate and Lithium Hydroxide Different?

Lithium is a core raw material in cathode materials for batteries. Among the four main battery materials (cathode, anode, separator, electrolyte), cathode materials account for the highest cost proportion, about 50%. Lithium accounts for 60-70% of the cost of cathode materials. An electric vehicle contains approximately 30-60 kg of lithium.

Cathode materials are made by combining lithium with precursors mixed with nickel, cobalt, manganese, and other raw materials. Lithium (Li) is the lightest metal on the periodic table and is highly reactive, making it difficult to use in pure form; therefore, it is processed and used in compound forms.

The main lithium compounds used in battery manufacturing are lithium hydroxide (LiOH) and lithium carbonate (Li2CO3). Lithium hydroxide is mainly used in ternary batteries such as NCM (nickel-cobalt-manganese) and NCA (nickel-cobalt-aluminum) because it is easier to synthesize with nickel. Domestic battery companies, which mainly produce high-nickel batteries with higher energy density, have high demand for lithium hydroxide.

Lithium carbonate is mainly used in batteries with LFP (lithium iron phosphate) cathode materials.

Lithium is found in small amounts in soil, rocks, and natural water. Commercially viable lithium is mainly extracted from hard rock mines or salt lakes (salars). About 87% of the world’s lithium is stored in salars, with the remainder found in hard rock deposits.

American mining company Albemarle is producing lithium from the Atacama Salt Flat in Chile.
[Image source=Reuters Yonhap News]

The ore containing the most lithium is spodumene, primarily found in Australia. Spodumene contains up to 8% lithium. Australia’s Greenbushes mine is the world’s largest and highest-quality spodumene mine.

Lithium mine in Greenbushes, Australia. Image source=Wikipedia

Lithium salars are mainly distributed in the South American Lithium Triangle (Argentina, Chile, Bolivia). Well-known salars include Chile’s Atacama, Argentina’s Salinas Grandes, and Bolivia’s Uyuni. Commercially viable salars contain 500 to 2000 mg of lithium per liter.

Process of producing lithium from salt lakes. Image source=Korea International Trade Association

The refining methods for lithium vary depending on the source, such as mines or salars. In mines, spodumene concentrate is mined and then processed through high-temperature heating, concentration, filtration, and addition of sulfuric acid or lime to produce lithium carbonate and lithium hydroxide. In salars, underground brine is evaporated using solar energy, impurities are removed, and additional processes produce lithium carbonate and lithium hydroxide.

How Did China Come to Dominate Lithium?

According to the U.S. Geological Survey (USGS), the world’s estimated lithium reserves total about 28 million tons. Chile holds 9.3 million tons (33.6%), followed by Australia with 6.2 million tons (22.4%), Argentina with 3.6 million tons (13.0%), and China with 3 million tons (10.8%). Chile and Australia together account for more than half (55.9%) of the total reserves.

Global lithium production in 2023 was 180,000 tons, a 23% increase from the previous year’s 146,000 tons. Australia produced 86,000 tons, accounting for 46.6% of the total. Chile produced 44,000 tons (23.8%), and China produced 33,000 tons (17.9%). Australia, Chile, and China together account for 88.3% of global lithium production. Recently, Chinese and American mining companies have actively entered South American lithium mines, and the share of lithium production in South America is expected to increase. The Korean government and companies are also focusing efforts in Chile.

Although China has the world’s fourth-largest lithium reserves, it has not fully developed its domestic lithium resources due to a lack of lithium development technology and geological issues such as high impurity content including magnesium. Instead, China has turned its attention overseas.

With the Chinese government’s policy to expand new energy vehicles (electric vehicles), lithium demand surged, prompting Chinese companies like Ganfeng Lithium and Tianqi Lithium to secure lithium through overseas mining equity investments in Australia, Chile, and other countries. Tianqi Lithium acquired a 51% stake in Australia’s Talison in 2013 to gain management control and later acquired a 25.87% stake in Chile’s SQM in 2018.

Ganfeng Lithium fully acquired Argentine mining company Lithea in 2022 for $962 million (approximately 1.3 trillion KRW). According to S&P, since 2018, China has invested $5 billion (approximately 6.8 trillion KRW) in acquiring overseas lithium mines.

The lithium produced overseas is transported to China and refined into high-purity lithium compounds. Thanks to lax environmental regulations and low production costs, China accounts for the majority of global lithium compound production. According to BloombergNEF, China accounted for 65% of global lithium refining in 2022. In particular, China’s share of lithium hydroxide refining, mainly used in high-nickel batteries, reached 75%.

Korea also depends entirely on overseas sources for lithium. As of 2022, 95% of Korea’s total lithium imports come from China (64%) and Chile (31%). Korea mainly imports lithium carbonate from Chile and lithium hydroxide from China. Korea’s dependence on Chinese lithium hydroxide imports is as high as 84%. Korea is also a major export market for Chinese lithium. As of 2021, Korea accounted for 54% of China’s total lithium exports.

If Korea does not reduce its dependence on China and diversify supply sources, it will inevitably be vulnerable to risks originating from China. In fact, due to trade conflicts with the U.S., China recently imposed export controls on several key minerals, causing concern among Korean companies.

Among domestic companies, the POSCO Group is actively securing lithium. POSCO Holdings acquired a salar in Salta/Catamarca Province, Argentina, and produces lithium hydroxide at a local plant. In 2023, POSCO began construction of the POSCO Lithium Solution plant in the Gwangyang Yulchon Industrial Complex. This plant will produce lithium hydroxide using brine lithium secured from Argentina.

POSCO also invested 2.76% equity in Australia’s Pilbara Minerals to secure spodumene through an off-take agreement. POSCO established POSCO Pilbara Lithium Solution with an 82:18 equity ratio between Pilbara and the Gwangyang Yulchon Industrial Complex to produce lithium hydroxide. POSCO plans to produce a total of 423,000 tons of lithium by 2030, including 100,000 tons of brine lithium and 223,000 tons of ore lithium.

Battery cell companies are also directly securing lithium. LG Energy Solution signed a contract in February this year with Australian lithium producer WesCEF to supply 85,000 tons of lithium concentrate.

"Lithium Price Stabilization"... Is This the Bottom?

Lithium is a representative mineral with supply that is inelastic to demand and price fluctuations. While lithium mine development takes 4 to 7 years, demand can change significantly in the short term, causing frequent supply-demand mismatches. As a result, oversupply and shortages repeat, and price volatility is severe due to supply-demand instability.

Currently, the market is considered to be in a stabilization phase. Bloomberg reported on May 24 that "lithium prices have entered a stabilization phase after boom and bust cycles," but also noted that "the market is still struggling to resolve inflated inventories."

Experts expect lithium prices to rebound in the long term after short-term adjustments. As the share of electric vehicle sales increases, demand for lithium is expected to continue expanding. BloombergNEF forecasts that lithium carbonate demand will exceed 2.4 million tons by 2030.

Domestic institutions believe it will be difficult for lithium prices to recover quickly. Although lithium prices, which fell to 86.5 yuan per kilogram in January this year, recovered to the 100-yuan range after March, the general view is that the trend for sustained price increases is low. The early-year rebound is seen as a temporary effect due to production cuts. Some Australian lithium mines began cutting production early this year, and Chinese companies postponed overseas projects. As a result, lithium supply is expected to decrease by about 150,000 tons this year.

Byun Jong-man, an analyst at NH Investment & Securities, forecasted, "In a state of global lithium oversupply, intensified competition in the electric vehicle market and price reductions will limit lithium price increases."

Korea International Trade Association, Analysis of Battery Key Raw Material Supply Chain: Lithium, 2022.9.30
Hi Investment & Securities, The Time for Lithium Hydroxide is Coming, 2023.1.25
KOTRA, Status of China’s Lithium Industry, 2023.6.26
Carbon Credit, Why Lithium Prices are Plunging and What to Expect., 2024.2.8
Ebest Investment & Securities, Lithium, Still an Unstable Rally, 2024.3.7
Bloomberg, SQM Swings to $870 Million Loss on Lithium Rout, Tax Change, 2024.5.24