A Missouri University of Science and Technology (Missouri S&T) research team has developed a lithium supply chain model that incorporates the connection between supply and demand and allows for the study of potential technical, geopolitical and economic factors that could impact lithium supply. Its findings are published in the Engineering Management Journal’s special issue on transportation management, out this month.
Last month, Lithium Investing News reported on the myth of peak lithium, presenting recent studies that show that global lithium supplies are more than ample enough to meet rising demand, at least until 2100.
Yet, as Ona Egbue, a doctoral student in engineering management at Missouri S&T, pointed out, 90 percent of lithium production is concentrated in China, Chile, Argentina and Australia. “The geopolitical dynamics of this distribution of lithium supplies has largely been ignored,” said Egbue. Such a monopoly on a strategic resource like lithium creates major supply security concerns for nations like the United States, a major importer of the white gold.
Bolivia is also host to an expansive lithium resource, the world’s largest, and that presents even further concern over supply for the United States. “The diplomatic relationships between the U.S. and Bolivia had deteriorated during the Evo Morales administration, leading to the dismantling of key partnerships,” Egbue explained. She used the example of China, which controls more than 95 percent of global rare earth supplies, but restricts exports, to illustrate how the concentration of a strategic resource in the hands of one nation can lead to supply instability and significantly higher prices. “This action by China highlights the risks of global dependence,” Egbue said.
Japanese technology company signs deal to secure lithium supply chain
Lithium supply security is front and center in the minds of the world’s leading technology firms. “Strategic alliances and joint ventures have been, and are continuing to be, established with lithium exploration companies worldwide to ensure a reliable, diversified supply of lithium for Asia’s battery suppliers and vehicle manufacturers,” states a 2012 report by the US Geological Survey.
On Wednesday, Toyota Tsusho (TSE:8015) announced a large-scale mining rights deal with lithium-rich Argentina through a joint venture with Australian resource exploration company Orocobre (ASX:ORE). The Japanese firm will have a 25 percent interest in the Olaroz lithium-potash project in the Salar de Olaroz brine located in Northwestern Argentina. Production at Olaroz is slated to begin in 2014, with an anticipated production rate of 17,500 tons per year of lithium carbonate. Japanese domestic demand is approximately 17,000 tons per year.
Securing lithium supplies top priority for US government
President Barack Obama has voiced a commitment to transitioning the nation to electric vehicles (the EV-Everywhere challenge) and renewable energy, which will require rechargeable and large-storage capacity batteries like lithium-ion batteries. A lack of domestic supply places that commitment in jeopardy as the same geopolitical issues that have plagued the oil industry could very well impact the lithium market. A world leader in lithium production up until the early 1990s, a large majority of US lithium consumption is met through imports from Argentina (50 percent) and Chile (47 percent).
The Obama administration seems intent on reviving the nation’s lithium industry to stave off the potential supply security risks posed by reliance on foreign imports. In 2009, the US Department of Energy awarded a US company $9.5 million to build the first US recycling facility for lithium-ion batteries. That same year, it announced $2.4 billion in Recovery and Reinvesment Act funding for advanced battery and EV projects.
Earlier this year, Rockwood Lithium, a subsidiary of Rockwood Holdings (NYSE:ROC), opened the Kings Mountain lithium facility in North Carolina after receiving $28.4 million in Recovery Act funding through the Department of Energy. The company also used the funds for further expansion at its Silver Peak operation in Nevada, where it produces lithium carbonate and lithium hydroxide from brines.
“The Kings Mountain facility expansion exemplifies American manufacturing leadership and technical expertise in clean energy technologies – helping to strengthen our nation’s energy security and create new jobs,” said US Energy Secretary Steven Chu. “With support from the Energy Department, this project will make America more competitive in a range of new technologies and will help ensure the United States leads once again in manufacturing the next generation of clean energy and advanced vehicle technologies.”
Another lithium company that received Recovery Act funding, California-based Simbol Materials, is constructing its first lithium extraction plant at the Salton Sea in Southern California. The privately-held company is using a unique extraction process first developed by the Lawrence Livermore National Laboratory. The reverse osmosis process produces high-purity lithium carbonate from geothermal brines without the need for solar evaporation. The company anticipates commercial operation in 2014 and at full capacity expects to produce enough lithium for approximately 1.6 million plug-in hybrid electric vehicles per year.
Chile concession bid outcome tightens “global monopoly on lithium”
The recent outcome of the Special Lithium Operations Contract (CEOL) auction in Chile has many in the industry crying foul. SQM (NYSE:SQM), the world’s largest lithium producer, beat out competitors with a $40.6 million bid — nearly three times higher than the POSCO Consortium, which included Li3 Energy (OTCBB:LIEG) and its partner POSCO (NYSE:PKX). Francisco Javier Errázuriz, president of NX UNO de Peine, which also bid on the CEOL, had harsh words for SQM’s exorbitant winning bid, calling it endemic of an “oligopolistic industry” intent on keeping a “global monopoly on lithium.”
“Under the terms of the tender, SQM doesn’t have any obligation to produce in 20 years so this is not generating any additional sources of work here in Chile,” said Errázuriz. “In an oligopolistic industry it is better not to produce — it is more profitable because if there is a greater supply prices fall. SQM doesn’t have any incentive to produce in Chile.”
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company or commodity mentioned in this article.