Price of lithium, a major element in lithium iron phosphate (LFP) batteries, had reached a fresh high of about $50,000 per ton in China by the first week of 2022. In this blog we are going to explore why the price of lithium is rising in the global market.
How Lithium Price has have raised in the last 1 year (Jan-21 to Jan-22)?
Suppliers can’t keep up with the amount of lithium needed for battery production due to escalating EV demand. Lithium entered a “structural deficit” by the end of 2021, which means there isn’t enough of the metal being mined and refined to meet demand.
Because China has the world’s largest EV battery market, it has the highest need for lithium. Furthermore, lithium contracts in China are “extremely short-term and fickle,” according to Simon Moores, CEO of Benchmark, who spoke to Emerging Tech Brew in November.
As a result, China is seeing the most significant price hikes, although lithium prices are rising all across the world. That’s terrible news for electric vehicle and battery manufacturers that haven’t yet secured lower lithium pricing through long-term contracts.
Now before getting into the reasons behind this price rise, let’s do a breakdown of the cost of the lithium battery. This is important so that you can understand what all factors are responsible for this price rise.
Cost Breakdown of Lithium Cell
- 51% of the cost of a lithium battery is owned by the cathode. The cathode material determines the capacity and power of a battery. It’s typically composed of lithium and other battery material.
- 24% of the cost is based on manufacturing and depreciation. Most of the cell manufacturing is done in China. it won’t be wrong to say that China is controlling the global lithium battery market.
- 12% of the cost is owned by the Anode. The anode is the negatively charged electrode that is made of graphite.
- 7% of the cost is owned by the separators.
- 4% of the cost is owned by the Electrolyte
- 3% of the cost is owned by the battery pack manufacturing.
The major share in the price is owned by the cathode. The cathode is made up of Lithium, Cobalt, Nickel, and Manganese.
Cobalt has doubled in price to $70,208 per ton since January, while nickel has risen 15% to $20,045.
Lithium mining is a long process
More lithium mines are being planned, but they will not be operational for at least five to seven years. The price tag varies, but it is expected to be in the hundreds of millions of dollars.
Supply isn’t expected to catch up to demand until roughly 2023, and price instability is predicted for the next three years.
While China’s “out of control” lithium prices may reach a high this year, the worldwide average cost of lithium will continue to rise.
Because batteries account for at least 30% of the entire cost of an electric vehicle, decreasing battery prices is critical to making EVs more accessible.
While the average price of an electric vehicle battery pack has reduced by roughly 90% in the last decade, the rate of decline slowed in 2021, owing to rising raw material costs such as lithium, cobalt, and nickel.
Some automakers will struggle to meet their aggressive EV production objectives as a result of the lithium shortage, which may cause price parity with ICE vehicles to be delayed.
How it all started?
The massive jump in lithium costs is mostly due to the growth in demand for electric vehicles (EVs), whose sales have soared.
According to Adamas Intelligence, a total of 25,921 tons of lithium carbonate equivalent batteries were deployed on roads in December 2021, up 68% year over year and 31% month over month.
The exponential surge in global sales of electric vehicles powered by lithium-ion batteries essentially reflects lithium’s exponential usage curve. According to a new report, about 6.5 million electric cars (EVs) were sold worldwide in 2021, up 109 percent from 2020. Mainland China and Europe accounted for over 85% of all sales.
In 2021, Chinese sales of new electric vehicles increased by 157.5% to 3.52 million units, accounting for half of the all-electric vehicles sold worldwide and 2 million more than in 2020.
The introduction of cheaper vehicles that use a type of battery that does not contain nickel or cobalt – lithium iron phosphate (LFP) – is increasing market pressure for carbonate feedstock, resulting in a once-in-a-lifetime pricing rise for carbonate over lithium hydroxide.
Raw material and geo-politics are adding up to the global rise in lithium price
The most essential component of the battery pricing structure is raw materials. Lithium and cobalt are two significant raw elements used in the production of batteries. These materials are uncommon, and their prices fluctuate a lot. Only eight countries produce lithium, and three of them — Chile, Australia, and China – account for 85% of overall output. The majority of lithium production is controlled by four companies: Talison, SQM, Albemarle, and FMC.
According to Benchmark Mineral Intelligence, there will be a supply vs demand mismatch for lithium by 2027, which would cause the price of batteries to soar.
Cobalt is a vital material for the battery industry, and the Democratic Republic of Congo now produces 70% of the world’s cobalt. The Democratic Republic of Congo is a politically volatile country, and its mining operation is usually contentious.
Apart from the Democratic Republic of the Congo, China is the second-largest source of cobalt. We all know what’s going on in terms of commerce between China and India.
To remove the geo-politics barrier, the world is moving towards the LFP batteries.