Lithium Is a Hot Commodity and It’s Only Getting Hotter
Commodity prices are soaring in 2022. Among the raw materials trending higher in both price and demand is lithium. In fact, lithium is quickly becoming a focal point in commodities reports because of its projected demand increases — and the lack of projected supply. Lithium is one of the world’s most important raw materials, and significant barriers stand between manufacturers and this increasingly precious metal.
What’s the deal with lithium?
Lithium is a chemical element extracted from the Earth in one of three forms: brines, pegmatites, or sedimentary rocks. The most common and efficient method of extraction is brining, and there are major brine deposits in the Americas — particularly South America.
Lithium is primarily valued for its energy retention properties. It’s a crucial component in batteries for laptops, cellphones, and even electric vehicles. Combined with cobalt, lithium is key to lightweight, rechargeable power, which is why demand is growing quickly and fast outpacing supply.
Demand and prices are skyrocketing
Lithium prices are up almost 500% over the past 12 months. It’s easy to blame the astronomically high materials market, but lithium stands out for its rapid price appreciation. Lithium’s prevalence in electronics manufacturing, along with its critical role in renewable energy, is propelling it to the top spot in the raw materials market. And big-name producers are driving prices higher.
Take Tesla (NASDQ: TSLA), for example. The electric vehicle behemoth is going to great lengths to secure a steady supply of lithium, inking deals in advance of production with, among others, China’s Ganfeng Lithium Co, “the world’s largest producer of battery-grade lithium.” Last month, Elon Musk tweeted, “Price of lithium has gone to insane levels! Tesla might actually have to get into the mining & refining directly at scale, unless costs improve.” Meanwhile, other producers are scrambling for market share.
The problem isn’t limited to major manufacturers claiming significant portions of the lithium supply. Lithium is expensive to mine, and deposits are difficult to tap, which means producers literally can’t get it out of the ground fast enough to prevent bottlenecks from further limiting supply.
The booming market for lithium
As the focus on renewable energy products intensifies, and efficiency becomes a key consideration for the batteries powering our devices, demand for lithium will continue to climb. The problem is the unprecedented rate at which it’s expected to rise.
In 2021, demand for lithium soared more than 70%, and analysts expect that momentum to continue through 2026 and beyond. Current projections estimate a five-year compound annual growth rate (CAGR) of 27.9%, and the key driver of this demand is batteries. As OEMs face higher demand for lithium-ion batteries, they are pushing demand for lithium in greater quantities. It’s a textbook recipe for supply and demand imbalance.