LONDON (Reuters) – Producers of processed lithium – an essential element for batteries used in electric cars – are agreeing long-term contracts with their customers to fund the investments needed to address a looming shortfall.
Demand for battery-grade lithium compounds is expected to skyrocket in the next decades in tandem with soaring demand for electric cars as governments and individual consumers try to reduce their carbon footprint.
Although there’s plenty of lithium around, the problem is ensuring there is enough capacity to process it.
Battery makers and other end-users such as car manufacturers will need to sign multi-year deals that encourage large producers to invest more, and faster, industry sources say.
Some of that is already happening.
“We’ve established the timeline for our own expansion based on the commitments our customers are making with us,” said Tom Schneberger, global business director at U.S.-listed FMC Lithium (FMC.N), one of the world’s top four producers.
“Our first priority will be to provide the adequate supply of the high quality products upon which (our strategic customers) rely,” he told Reuters.
Expansion plans by Chile’s Sociedad Quimica Y Minera (SQM) SQMa.SN, another of the top four, for next year are also based on long-term agreements, the company told Reuters.
The production and use of electric cars is projected by Morgan Stanley analysts to rise to 2.9 percent of 99 million new vehicles in 2020 and to 9.4 percent of 102 million new vehicles in 2025, from 1.1 percent of 86.5 million this year.
By 2050, 81 percent of 132 million new auto sales will be electric, Morgan Stanley says.
The lithium-ion batteries needed to power electric cars use lithium carbonate or lithium hydroxide, but the industry typically talks in terms of lithium carbonate equivalent which contains both.
Two types of lithium deposits dominate.
One is hard rock as found in Australia, for which ready-to- go capacity to produce battery grade lithium can take up to three years. The other is brine, mostly found in Chile and Argentina, which can take seven years or more.
China has reserves of both.
Consultants Roskill estimate 785,000 tonnes of lithium carbonate equivalent a year will be needed by 2025, amounting to a 26,000-tonne shortfall from anticipated supply, compared to 217,000 tonnes of demand versus 227,000 tonnes of supply this year.
Others expect an even larger deficit.
“There’s limited visibility into where we’re…