The lithium industry is characterized by several key factors:
1) Significant Expected Demand Growth
2) Numerous End-Uses For Lithium
3) Limited Number of Current Producers
4) Rising Lithium Prices
Significant Expected Demand Growth
As illustrated in the chart below, the demand for lithium is expected to more than double over the next 10 years. This is after the demand for lithium has already doubled over the past decade. Historical growth was driven largely from the demand for lithium used in the small format lithium-ion battery (ie rechargeable batteries used in consumer devices such as cell phones, laptops, digital cameras, and hand held power tools). Future growth in lithium demand is expected to come from continued growth in the small format lithium-ion battery, as well as new demand from the large format lithium-ion battery used in applications such as the hybrid, plug-in-hybrid, and full electric vehicle – as well as for battery applications within the utility grid storage industry.
Numerous End-Uses For Lithium
Although the demand growth for lithium is largely attributable to the battery industry (lithium demand for batteries had a 28% compound annual growth rate (CAGR) from the year 2000 to 2009, while the total demand for lithium had a 6% CAGR over the same period), lithium has many other end uses (see chart below). In fact, the ceramics and glass industry is currently the largest lithium end use market at > 30%. Lithium makes glass products such as dishware and stove cook tops more resilient – so you can put ceramics in the microwave or place cooking instruments on your glass cook top without having them break or crack. The fact that lithium has numerous end-use markets diversifies the risk from overconcentration in any one industry.
Limited Number of Current Producers
The lithium industry is dominated by 4 current producers (see chart below). These 4 producers (Talison, SQM, Chemetall, and FMC) account for ~ 85% of total lithium supply. Of these 4, Talison is the only pure-play lithium company. However, Talison is a “hard rock” producer, while the other 3 are “brine” producers. Hard rock production is typically twice as expensive as brine production. Furthermore, Talison does not produce lithium carbonate. Rather, it produces lithium concentrate which is either used in the ceramics and glass industry, or sold to Chinese processors who process the lithium concentrate into lithium carbonate. While the other 3 current producers (SQM, Chemetall, and FMC) are lower cost brine producers, they are not pure-play lithium companies. In fact, lithium revenue typically represents less than 20% of each firms’ total revenue.
Rising Lithium Prices
Lithium prices have nearly tripled over the last 10 years (see chart below). This can be expected in an industry which has seen demand significantly increase, without any new major supplier entering the market.