Lithium & Rare Earths Boom in the 2020s with the Rise of EVs
Updated: Mar 2
By Natalie Way, Senior Research Analyst at King's Private Equity Club
With various government subsidies on electric vehicle production and consumption worldwide to combat climate change, the adoption of E.V.s is growing exponentially. The global E.V. sales are rising significantly at 65% from 2017 to 2018, with 2.1 million vehicles in total (IEA, 2020). E.V. sales also made up just over 54% of all new car sales in Norway in 2020, a country whose wealth is mainly based on fossil fuels (F.T., 2020).
Behind the scene, Lithium and Rare Earths are indeed the critical components which power the vehicles. As different automakers are trying to share a slice in the booming E.V. market and started producing their own electric vehicles, Lithium and Rare Earths remains something scarce and indispensable to E.V. production.
Lithium’s Demand is Set to Triple by 2025
Lithium-ion batteries (LIBs) are currently the dominant technology for E.V.s (Deng, 2020). A typical E.V. contains approximately 5,000 battery cells. A single E.V. has, therefore, roughly 10 kilograms of lithium in it. Building a million cars would require about 60,000 tonnes of lithium carbonate equivalent (LCE).
According to China Automotive Power Battery Industry Innovation Alliance (CAPBIIA), China E.V. battery production/sales/installation volume in 20th December grew by 143.9%/56.9%/33.4% YoY respectively. This indicated ample downstream demand in the coming year from the domestic E.V. market.
The increase in lithium demand is reflected in the commodity's price. Lithium compound price has rebounded to a 14-month high level in 2021. The latest lithium market data suggests that domestic lithium carbonate (battery-grade) spot prices surged by 30% YTD to Rmb69,700/tonne as of 26th January 21. Meanwhile, lithium hydroxide (battery-grade) spot prices have gone up even higher by 40% YTD during the same period. Lithium metal price also edged up by 2% YTD from a 4-year trough level.
Countries that are Dominating the Lithium Resources
Lithium is mainly sourced from either spodumene or brine. Australia is home to the majority of hard rock (spodumene) mines, while brine production is concentrated in South America, mainly in Chile and Argentina (S&P Global, 2019). In contrast, Chinese companies have become some of the world's largest producers of lithium. The country produced over 60% of the world's Lithium in April 2020, compared with less than 1% from the U.S., dominating the electric car supply chain. (F.T., 2020).
The biggest players in the Lithium production industry include the Chinese companies Tianqi Lithium (SHE:002466), Ganfeng Lithium (HKG: 1772), American companies Albemarle (NYSE: ALB) and Livent (NYSE: LTHM), as well as Chile's Sociedad Quimica y Minera de Chile (NYSE: SQM). These five companies together control more than 70% of the world's lithium supply, in which Tianqi alone controls 46% of the global production of lithium. Whereas Ganfeng Lithium is the leading Chinese lithium mining company that sealed a 10-year supply deal with V.W. in April 2020 and also reached a 3-year lithium deal with Tesla back in 2018.
Lithium Supply Set to near triple by 2025
Source: S&P Global Market Intelligence, S&P Global Platts 2019
Rare Earths – Another Critical Component to E.V. Production
Rare earths are a group of 17 elements found in everything from smartphones to electric vehicles. Neodymium and dysprosium are the two major kinds of rare earths used to produce EV-specific magnets. According to a report from Grand View Research, the surging demand for electric vehicles is bound to boost the adoption of permanent magnets in the production of batteries.
The global rare earths elements market size was valued at USD 2.80 billion in 2018 and is estimated to witness a CAGR of 10.4% to 2025. A report from Brand Essence Research added to that projection, saying that the market size will reach $ 20.6 billion in 2025. The report claims that the growing demand for magnets in automobiles and energy generation will be a major contributing factor to the growth of the global rare earth metals market over the forecast period.
Rare Earths Demand Forecasted to Increase by 4,066% by 2030
The International Energy Agency (IEA) forecasts the E.V. fleet will grow from 3.1m in 2017 to 125m in 2030. Given a fully electric vehicle requires between 1kg to 2kg of neo magnets, with 0.42kg for hybrid variants, the market is set to expand massively over the next decade. Dysprosium demand for E.V.s in 2017 was around 180–360 tons (t).
If the IEA's forecast holds, demand for dysprosium in E.V.s will reach 6,000–13,000t by 2030, while neodymium would go from 582–1,162t in 2017 to 20,000–40,000t by 2030. Praseodymium would grow from 150–300t in 2017 to 5,000–10,000t by 2030 (Edison Group, 2019).
China Domination in Rare Earths Threatens the Global Supply Chain
China has dominated the supply chain for rare earths over the last 26 years, growing its market share from 54% in 1994 to highs of 97% in 2006. Although several nations have picked up on rare earths production again while new players are entering the market, China was still responsible for almost two-thirds of global rare earths production in 2020, according to the U.S. Geological Survey.
Source: F.T., 2020
Around 88% of China's 2019 rare earths exports went to just five countries, which are among the world's technological and economic powerhouses. Japan and the U.S. are by far the largest importers, collectively accounting for more than two-thirds of China's rare earths metals exports.
Source: Visual Capitalist, 2021
In February 2021, China is exploring limiting the export of rare earths minerals. Last month, the Ministry of Industry and Information Technology proposed draft controls on the production and export of 17 rare earths minerals in China, which controls about 80 per cent of global supply. This would echo with the rare earths price volatility in 2010 caused by China's monopoly on rare earths, when China put export quotas on rare earths, driving the price upwards. The 2010 quotas led to a decline in global total rare earths oxide production of 30% in a single year.
U.S. Ramping Up Rare Earths Production
Beijing's threat of rare earths sanctions has added urgency to efforts to break China's stranglehold over the industry, which controls $13billion a year combined in the manufacturing of powerful rare earths magnets. The Trump administration earmarked $209m in public funds for the sector in 2020.
The U.S. Department of Defense has awarded three rare earth-related grants worth roughly $ 13 million in November 2020 to help boost domestic production of the specialized minerals. Out of which The Pentagon awarded $ 9.6 million to M.P. Materials Inc, which owns the only U.S. rare earths mine, the Mountain Pass Rare Earths Mine in California, to help the company process light rare earths.
The Pentagon is also backing 30.4million to a similar project in Texas proposed by Australian company Lynas to counteract the fact that China is withholding supplies of rare earths. The Australian company is the world's second-largest producer of rare earths and the only major producer outside China. Lynas operates an extraction facility in Australia and a refining plant in Malaysia.
Other U.S. companies are entering the market, as well. The Texas-based private company, USA Rare Earths, has partnered with Texas Mineral Resources Corporation to open a rare earths mine at Round Top Mountain outside El Paso, while Urban Mining Co. (UMC) —another Texas-based company — has developed a process to recycle rare earths metals reclaimed from industrial waste (Fortune, 2021).
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