Mexico: The World’s Next Lithium Supplier?

The lightest metal in the world, appetite for lithium is growing as technology demands long-lasting batteries to power tech innovations such as electric vehicles. But its steady demand may not be enough to keep prices high in the midterm with operators now eager to increase supply.
According to the USGS Mineral Commodity Summaries 2018 report, portable electronic devices, electric tools and grid storage applications are factors that contribute to demand for the metal, not to mention lithium’s broad scope in medicine and pharmaceutics. “Lithium, mainly used in batteries, will continue to enjoy steady demand,” says Alejandra Torijano, Country Manager of Agilent Technologies. “Also, the biggest electric car producer in the world, Tesla, has announced it will focus on Mexico and the country’s lithium supply.”
An analysis by Statista on the projection of total worldwide lithium demand from 2017 to 2025 argues that the metal’s demand growth of the last couple of years is expected to continue in the medium term. The statistics organization reports a total worldwide demand in 2018 of 252,653 tons of lithium carbonate equivalent (LCE), a figure forecasted to reach 300,000t/y by the end of 2021 and 422,600t/y by 2025.
Alongside demand, lithium prices have enjoyed consistent growth after recovering from a stagnation toward the end of the first decade of the century. In 2011 the average price of lithium was US$3,870/t and by 2015 it had climbed to US$6,500/t. Between 2017 and 2018, lithium’s value surged to US$16,500/t in 2018, up 81.3 percent from US$9,100/t in 2017. According to Reuters, price increases are expected to continue in 2019.
China remains the king of demand but the US is on the rise. “If Tesla, General Motors, Ford and Chrysler continue to incorporate electric vehicles, the US could become the third-biggest market after China and Germany,” says Peter Secker, CEO of Bacanora Lithium, which will operate the upcoming Sonora Lithium project, with feasibility studies forecasting 17,500t/y lithium carbonate. But while electric cars have been the catalyst for the light metal’s demand, increasing supply could produce a dramatic price drop in the midterm.
SUPPLY DYNAMICS
The fast rise in demand had producers unable to adjust production as quickly, which resulted in a supply shortage that caused a rise in prices. But Rick Rule, President and CEO of Sprott US Holdings, says there is more than enough lithium in the ground to meet demand. “There is no shortage of lithium, rather a shortage of lithium processing capability, and the industry is working very hard to increase productive capacity, which will fix this problem,” he says.
Tight supply in Australian spodumene imports to China meant the Chinese spot lithium carbonate prices increased, ranging from US$15,000-24,000/t. Average fixed contracts in the rest of the world experienced lower prices due to a diversified supply. “For large fixed contracts, Industrial Minerals reported an annual average US lithium carbonate price of $13,900 per metric ton in 2017,” says USGS. However, that still represents a 61 percent increase from average 2016 prices.
OFF-TAKERS
Continuous exploration has allowed an increase in lithium deposit findings worldwide by more than 53 million tons. According to USGS 2018, the main lithium powerhouse ranking has Argentina leading on resources, followed by Bolivia, Chile, China, the US, Australia and Canada.
Although Mexico did not take one of the top spots for lithium resources, the state of Sonora is thought to hold one the largest lithium clay deposits in the world, which is both scalable and high-grade. But Bacanora’s project may be a cautionary tale for operators looking to mine lithium in the short term as the costs are high and the construction time long. “It will cost US$420 million to build the plant over 18 months,” says Secker. “We plan to start production by 2020. We have been working on this project for 10 years and operating our pilot plant over the last four years. It has taken us a long time to get to where we are.” It has already signed several off-take agreements with Japanese company Hanwa and The Sovereign Wealth Fund of The Sultanate of Oman (SRGF).
The metal cannot come out of the ground fast enough so securing these agreements for lithium has become a top priority for technology companies around the world. “Strategic alliances and joint ventures among technology companies and exploration companies continued to be established to ensure a reliable, diversified supply of lithium for battery suppliers and vehicle manufacturers,” reports the USGS. For example, Sociedad Química y Minera (SQM), Chile’s leading producer, partnered with the Australian company Kidman Sources in striving to diversify supply with the Mt Holland project. This operation will be in the city of Perl and is expected to start producing an estimate of 40,000t/y lithium carbonate equivalent by 2021.
A HEALTHY BALANCE
While new lithium projects, such as Sonora Lithium and the Mt Holland project, are helping guarantee a healthy supply; analysts at Morgan Stanley forecast that the demand boom of the last decade will be insufficient to keep prices steady. This could lead to a severe 45 percent price-drop by 2021 to US$7,332/t, from 2017’s average of US$13,375/t.
Darren Blasutti, President and CEO of Americas Silver Corporation, warns about the fictitious promises of trendy minerals, such as lithium is today. “I have been in the mining industry since 1994. In this time, there have been many trendy metals, like rhodium, rare earth elements, molybdenum and lithium now, a few times. We do not feel the hype is sustainable over the long term as prior experience has taught us,” he says.
THE FUTURE OF LITHIUM
Lithium producers, however, believe the demand is there. “Lithium is the fastest-growing commodity in the world and demand is increasing 17 percent annually,” says Secker. “We think that lithium demand will continue to grow 15-20 percent up to 2025 and grow 10 percent thereafter. Solar and wind energy will also play a role in demand as their presence in the market continues to grow.”
But Rule says although expectations for the metal are high, it has its drawbacks just like any other commodity. “Lithium is the flavor of the month at the moment for several reasons, the most important being that people have not yet lost money on it in a prior market downcycle,” he says. “This means investors are generally unburdened by caution when it comes to this metal and there are no bad expectations.”
While lithium production is forecasted to keep growing, it is worth bearing in mind the importance of maintaining a healthy balance between lithium supply and demand. Otherwise, it could meet a fate similar to that of cobalt, especially given the number of substitutes that exist for lithium. Out of concern for future prices and demand of cobalt, as well as the fact that most cobalt is mined in the DRC and linked to human rights violations, Tesla reduced the content used in its batteries to the minimum and replaced it with nickel.
Should the stability of lithium prices be questioned in the future, global battery producer giants may choose to diversify away from it as well. However, Ken Brinsden, CEO of Australian lithium miner Pilbara Minerals believes there may be many more potential uses for the metal aside from batteries. “I am firmly of the view that everyone, including Morgan Stanley, is grossly underestimating how quickly the market is moving on the demand side,” he says.