In the last 5 years, the demand for lithium has tripled. This immense increase has one main driver: the switch to renewable energies. Lithium is indispensable for almost all new technologies that are needed in this context, be it electric cars, solar systems or wind farms. Since new investments will probably have to be made in this area in the future in order to achieve the climate goals, this development will probably continue.
A sought-after raw material
According to a recent study by the International Energy Agency (IEA), global demand for the light metal lithium increased threefold between 2017 and 2022. The reason for this seems clear. It is the massive investments in new technologies that are intended to enable the change to a low-emission economic system. The list of these technologies is long, but lithium-ion batteries and accumulators are particularly important in this context, without which the mobility transition would hardly be possible.
Almost every electric car has such a battery installed and, as the name suggests, lithium is a crucial component of it. This type of battery is so commonly used because it has a higher energy per mass than other types. This advantage is particularly important for electric cars, as it is important to reduce weight without reducing the range. It is therefore not surprising that well-known manufacturers such as Tesla, BYD and Co. usually use lithium-ion batteries.
But this type of battery is also used in other areas such as wind and solar energy, which are of great importance in the energy transition. In some phases, wind or solar parks produce more energy than is currently needed. This excess energy must then be stored to ensure a more consistent power supply. This is exactly where lithium-ion batteries can also be used as energy storage devices. The advantages of such storage systems over alternative technologies are their efficiency, speed and longevity. Against this background, it becomes clear how important lithium can be for the power grid of the future.
For the current year, the IEA forecasts global investments in renewable energies amounting to $1.7 trillion and thus a further increase in investment volume. The driving factors behind this are the sharp price increases for fossil fuels, the Inflation Reduction Act in the USA and new initiatives from the EU, Japan and China. In combination with further increasing sales of electric cars, the demand for lithium could increase further in the future. In view of this, the IEA is concerned about possible supply bottlenecks and is calling on the industry to build diversified and secure supply chains.
An interruption in the supply of this important raw material could be fatal for the industries mentioned above. The mine operators are already trying to meet the high demand with additional investments in new projects, as these increased by 50% last year. But even that might not be enough, according to the IEA. In addition, investments appear to continue to be heavily focused on the already dominant countries, so diversification in the supply chains is not foreseeable.
Rosy prospects for Albemarle?
One of the largest players on the market is the US company Albemarle. The company became one of the largest lithium producers in the world through, among other things, the acquisition of Rockwood Holdings in 2015 for $6.2 billion. The company is now active in over 100 countries, including of course the top locations Australia and Chile.
The strong growth of the lithium market gave the company brilliant figures for the 2022 financial year. Sales rose to approximately $7.3 billion, more than doubling compared to the previous year, and profits also rose sharply. The company also started 2023 strongly with sales doubling in the first quarter compared to the same period last year.
However, due to a significant correction in the price of lithium, CEO Kent Masters was forced to revise the outlook for the full year downwards. This clearly shows that, despite high demand and favorable conditions, the market does not always have to move in favor of the producers. How the lithium price and associated Albemarle's business will develop over the next few years remains to be seen.
