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The risks of supply squeeze push lithium higher and higher

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(Bloomberg) – Lithium burst in 2022 with another price spike that further warns electric vehicle makers of even greater cost pressures ahead.

Primary battery material supplies face a series of near-term risks that threaten severe shortages just as demand accelerates with increasing adoption of EVs around the world. An already tight market is disrupted with everything from factory maintenance, to restrictions on the Winter Olympics in China, to labor shortages linked to the pandemic in Australia.

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This is expected to put further pressure on electric vehicle makers after a year in which global lithium prices nearly quadrupled. Lithium carbonate in China is already up 13% this year to a new high, adding to a gain of over 400% in 2021.

“The lithium market is currently extremely tight, so spot prices are very sensitive to any supply disruption,” wrote Alice Yu, analyst at S&P Global Market Intelligence, in an email.

Lithium’s breathtaking start to the year echoes general expectations for a price increase. Short-term supply disruptions add to a longer-term picture in which a growing global lithium industry is struggling to keep pace with searing customer demand.

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Gains for other commodities mean battery costs this year could rise for the first time since 2010, according to BloombergNEF. Nickel, also an important ingredient in batteries, has just hit a nine-year high.

Short term

In China, a series of lithium factories are regularly maintained, while some producers in northern provinces like Shandong and Hebei face anti-pollution restrictions around the Winter Olympics, according to Shanghai Metals Market. The Games begin in early February. The arrival of the omicron variant of Covid-19 in China only adds to the risks.

Ahead of the week-long Lunar New Year break in China, maintenance work on the refinery is expected to intensify as buyers look to source supplies, S&P’s Yu said.

Virus-related challenges have affected miners in Western Australia, for example with labor shortages resulting from state border restrictions. Pilbara Minerals Ltd. recently lowered its forecast for shipments of spodumene concentrate, an intermediate product that can be turned into battery chemicals.

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Stay focus

Beyond these short-term issues, there are challenges for lithium to grow fairly quickly in the years to come. Sourcing skeptics can cite the Rio Tinto group, which faces environmental protests in Serbia, and growing concerns over the sustainability benchmarks of brine-based production in South America.

“Customers are realizing that it is very difficult to bring in new supplies,” said Tony Ottaviano, CEO of Australian lithium miner Liontown Resources Ltd. His company has agreed to ship lithium to South Korean battery giant LG Energy Solution from 2024, when its project is scheduled. to start.

For now, downstream players are hoping for some relief later this year from the current wave of higher prices.

“If these upstream company capacity plans can be implemented within the timeframe in mid-2022, raw material and battery prices will remain stable,” said Jessie Cai, vice president of EVE Motor, a unit of Chinese battery manufacturer EVE Energy. E-mail. “Otherwise, they could increase further. “

© 2022 Bloomberg LP

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