The demand for lithium has attracted considerable interest in recent years. The global uptake of rechargeable batteries has been increasing strongly as carbon legislation and air quality concerns have prompted car manufacturers to roll out electric vehicles. Carbon legislation is also driving significant investment and deployment of renewable energy generation technology. Given the intermittent nature of renewable energy sources, increasing deployment will require energy storage solutions to manage energy supply and demand.
With the increased investment in the sector, energy storage costs are falling and the number of technical options are increasing. Lithium features heavily in many of these solutions in the form of large scale batteries. Along with the developments in lithium batteries for portable applications and electric vehicles, the global consumption of lithium has increased steadily in recent years, at a CAGR of around 11% between 2010 and 2015. The anticipated upsurge in future lithium demand and tight market conditions has lead to an increase in Chinese spot prices from approximately US$7,000/tonne in September 2015 to over US$20,000/tonne more recently.
CRU has recently completed a comprehensive examination of lithium supply and projects, demand and end-use sector analysis, and pricing trends through to 2020. Our analysis reveals that the lithium industry will see strong growth in the next five years, and as we explain further in our new research note below, this growth will be powered by use in the battery sector and increased demand from Asia.
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Batteries will drive the surge in lithium demand
The most attractive new end-use sector for lithium is lithium ion batteries (LIBs). LIBs have become the dominant cell type for rechargeable batteries since the early 2000s, and with continued commercialisation in both scale and refining of chemistries and performance, LIB manufacturing costs have dropped significantly in recent years. CRU expects LIBs to maintain their high market share over the medium-term due to ongoing developments in LIB technology for EVs (primarily) along with home and grid energy storage applications.
Our analysis of the industry highlights that while LIBs represented 44% of lithium demand in 2015, they will become the largest lithium-consuming sector in 2018. Our demand forecasts show that LIBs will account for ~55% of total demand by 2020, taking over from industrial applications, such as the manufacture of ceramics and glass, which have traditionally been the largest end-use sector of lithium . The chart below illustrates this staggering growth in lithium demand, driven by LIBs.
Within batteries, electric vehicles are the major growth area
Within the battery sector, CRU finds that the major driver for the upsurge in lithium demand will be the anticipated surge in the use of electric vehicles (EVs), hybrid electric vehicles (HEVs) and plug-in hybrid electric vehicles (PHEVs) in response to tighter carbon emissions legislation and air quality concerns. Public acceptance of EVs has so far been slow, due to the limited range permitted by current battery technology, the lack of charging infrastructure and safety concerns. However the impetus to develop a better battery and an acceptable EV is considerable and continues to attract financial support from the public and private sectors. In China, the central government is offering incentives to EV manufacturers for meeting sales targets and developing new technologies. Based on monthly EV sales to date, more than 50% of global EV sales are expected to be in China in 2016.
In spite of the rapid decline in oil prices over the past year, EVs will remain the primary driver for LIB demand. Our analysis indicates that the uptake in the EV segment i.e. EVs, HEVs and PHEVs, will increase at a CAGR of 11% in the next five years. As such, lithium demand for the EV segment will increase at a CAGR of by approximately 23%through to 2020, as shown in the chart below during a period when existing portable electronic applications are maturing and demand growth is slowing.
Growth in demand will be concentrated in Asia
In 2010, the consumption of lithium was fairly evenly dispersed across Europe, North America and Asia. Since then, Asia has seen the highest growth in lithium demand, primarily due to the production of LIBs for electronics and EVs.
Japan's LIB manufacturing capacity was established in the 1990s by the consumer and electronics industries, and government support. As such, the industry is well established - around 15% of global market share - and benefits from advanced manufacturing processes.
The LIB manufacturing industry in South Korea was established in the early 2000s, largely with government support, and now has around 20% of global market share.
There is now 80-90GWh/y of LIB production capacity worldwide, and more than 85% of this is located in China, Japan and South Korea. In 2015, more than 50% of fully commissioned LIB manufacturing capacity was located in China, equivalent to more than 40GWh/yr.Apart from Tesla's 35GWh/y factory in Nevada, our analysis indicates that over 90% of new LIB manufacturing projects in the pipeline are in China.
Energy storage presents significant upside for long-term lithium demand
Global installed capacity of renewable energy has exceeded expectations in recent years has had a flow on effect to both grid-based and distributed electricity systems. The intermittent nature of renewable energy sources means that 24/7 power is not possible without sufficient back-up power or storage such as large scale batteries.
According to CRU's primary energy model, renewable energy generation is expected to grow at a CAGR of 11% from 2015 to 2020. The higher proportion of intermittent renewable energy power generation presents a significant opportunity for the energy storage market in which lithium, in the form of large scale LIBs, features heavily.
Although the energy storage is still in its infancy, we believe that large scale LIBs are a key contender in the race to find the most cost-effective and reliable energy storage solution, otherwise known as the 'holy grail' for renewable energy. In 2015, sodium sulfur (NaS) batteries accounted for the majority of the global battery storage market, equivalent to around 50%, compared to large scale LIBs with around 35% market share. However, we expect a transition to large scale LIBs with over 50% market share by 2020, due to advancements in battery technology and learning-by-doing economics as key projects are developed.
You can find out more on CRU's Technology Metals capabilities from this page. If you would like to speak to us further about our analysis and the Lithium Market Outlook, please get in touch.
CRU's other Insights on Lithium:
Julia Ralph | Principal Consultant
Julia is a Principal Consultant based in Hong Kong, with her role focusing primarily on developing CRU's business in Southeast Asia and Hong Kong.
Prior to joining CRU, Julia worked in both technical site-based and commercial roles across a range of commodities and regions. Julia gained her experience at major mining companies including Rio Tinto and Minmetals Group, for a period of 7 years where she covered bulk commodities, primarily iron ore, and energy supply.
Julia managed a wide variety of technical and commercial energy projects on electricity and fuel supply in Australia, North America, Africa and Europe. Julia has also worked on energy technology assessments, corporate energy strategy development, power plant due diligence and Power Purchase Agreements for global mining operations and industrial customers.
Julia holds Bachelor of Chemical Engineering (Honours) and BSc in Mathematical Physics from the University of Melbourne, and an MBA from Imperial College London.
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