Metals & Mining
Still an early-stage growth story
The short-term cycle in lithium is, and will continue to be, volatile, but the longer-term challenge is to build an industry of fundamentally different scale than its current form that should underpin long-term lithium prices. We estimate that over US$50bn of investment will be needed to boost supply to 4–5x current levels by 2030. We are raising our near-term lithium prices to reflect the current supply/demand cycle and raising our long-run (post 2031) price forecasts (from US$17,000/t to US$22,500/t LCE) to reflect lithium’s high demand growth and highly concentrated supply fundamentals.
Lithium is a solid long-term structural growth story, reflecting its use in electric vehicle (EV) batteries and other energy storage applications linked to grid decarbonization. We see demand growing at a 20.3% CAGR from 2022 to 2030, which is exceptionally high in commodity and chemical markets. Our estimates point to lithium demand in 2030 of approximately 3Mt, broadly in line with industry and International Energy Agency (IEA) projections and 4–5x current levels. At a typical capital intensity of US$25,000/t (according to our review of public project plans), we estimate that the 2.1Mtpa of additional capacity by 2030 will require US$52.5bn of investment. This is both a financing and a technical challenge in this timeframe. Supply chain security and the decarbonization of critical minerals supply chains mean a wide variety of new entrants will be needed.
We (like much of consensus) see a potential acceleration in supply over the next three years as both greenfield and brownfield expansions come online. But delays also need to be factored in (commissioning delays, general disruption and pre-qualification of product). Our cyclical supply/demand forecast indicates a significant supply shortfall based on committed expansions opening up in the late 2020s (0.5Mt in 2027), which is a relatively short runway for uncommitted projects to be funded, approved and built. We include a detailed review of the latest published capex and opex projections for a wide range of potential projects in this review.
We raise our long-term price lithium carbonate price from US$17,000/t to US$22,500/t to reflect wider industry inflation and our view of persistent deficits. This is well below current spot prices (c US$70,000/t) but we do not see prices falling to this level in the 2020s and only allow for long-term pricing in the 2030s onwards. Even then, we question if conventional long-term price methodology works well in markets that are high growth and highly consolidated, as persistent deficits will leave prices closer to substitution levels for periods of time.
Lithium equities have performed strongly over the past two to three years, mirroring lithium prices. We like both existing producers with cash flows and emerging producers with high-quality projects. Lithium fits two of our current global themes, namely energy transition and critical materials, and we see continued government support for new entrants along the value chain.
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