Lithium Power International Ltd | How Lithium Defied the Global Commodities Rout
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How Lithium Defied the Global Commodities Rout

How Lithium Defied the Global Commodities Rout

It has earned the nickname “white petroleum,” and thanks to its use in electric vehicles and smartphones, it is one of the few raw materials climbing in price in an otherwise broad commodities slump.

In the Chinese market, lithium prices have more than tripled since the beginning of 2015, as hard-to-mine supplies fall short of demand.

The price of the feedstock—lithium carbonate equivalent—has shot up to as high as $20,000 a ton from $6,000 a ton at the beginning of 2015, said Anthony Tse, managing director of Galaxy Resources Ltd., a lithium-focused resources company, with assets spanning Australia, China, Canada and Argentina.

Lithium is the key material used in lithium-ion batteries needed to run everything from electric vehicles to iPads. Unlike other commodities, it doesn’t have a spot market and isn’t traded on any exchange. Prices are negotiated individually through contracts between buyers and sellers.

“The lithium market is short [on supplies] in the near term. Demand is increasing rapidly on the back of planned and actual electric vehicles, not just in China but also in [the] U.S., over the next five years,” said Ben Cleary, portfolio manager at Tribeca Global Natural Resources Fund.

Electric vehicles are grabbing a larger share of auto sales every year. That means total lithium demand will increase 500% from 2015 to 2020, Mr. Cleary predicts.

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A report from Goldman Sachs said lithium demand could triple by 2025 to 570,000 tons from 2015 levels, driven principally by battery applications.

China and the rest of Asia are fueling the demand.

According to a Nomura report, China accounted for 68% of the global consumption of lithium batteries in 2015. That share is expected to grow because the country is increasingly turning to lithium batteries to power its transportation sector. China’s government has said it wants to have five million new-energy vehicles, as well as 200,000 electric buses, on the road by 2020.

“That will mean continued strong growth in demand for lithium in that country,” said Mr. Tse of Galaxy.

Over and above, lithium consumption would also increase each time a consumer switches to a smartphone from a basic phone.

While the earth’s crust contains plenty of lithium—a silvery white material and the lightest metal—it is difficult to dig up. Most deposits are in remote locations that pose technical and logistical challenges.

There are about a half-dozen meaningful lithium resource sites globally, spread among Chile, Argentina and Australia.

Since the beginning of 2015, the stock prices of Chinese lithium producers Jiangxi Ganfeng Lithium Co. and Sichuan Tianqi Lithium Industries Inc. have quadrupled.
Producers in Australia—home to some of the biggest reserves of the commodity in the world—have watched their value multiply many times over as market prices surged.

Big global miners say they are watching the market cautiously.

“We will watch it…but even in some of the most optimistic projections, it is a relatively small market,” said BHP Billiton Ltd. CEO Andrew Mackenzie. Still, he said, it is a market the world’s biggest miner is likely to tap. Industry executives say the supply-demand balance for lithium is likely to remain tight for three to five years as miners struggle to ramp up quickly enough to meet the demand for battery-grade lithium. After that, though, the market could tip into oversupply as new capacity comes on board.

Others say lithium could end up pushed aside by newer battery technologies.

Graham Kerr, CEO of South32 Ltd., which has a greater focus on specialist commodities, including manganese and alumina, said he is wary of investing in the market on the basis of battery technology that is quickly evolving. “It is one of those niche kind of commodities that can be the flavor of the moment today, but if technology moves a different way, it doesn’t have many multiple uses.”
—Rhiannon Hoyle and Yifan Xie contributed to this article.

Write to Biman Mukherji at biman.mukherji@wsj.com
Corrections & Amplifications:
Lithium is the lightest metal. An earlier version of this article incorrectly stated it was the lightest element in the periodic table.