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Lithium is an important driving force behind electric vehicles. Since 2021, concerns about the long-term imbalance between lithium supply and demand and market speculation have led to the "skyrocketing" of lithium prices and a general increase in the price of electric vehicles. Will lithium supply keep up with demand in the future? We believe that new technologies and supply sources are expected to fill the supply gap.

Author: Marcelo Azevedo, Magdalena Baczy ń ska、KenHoffman、AleksandraKrauze

The industry expects that the market demand for lithium will soar from about 500000 tons of lithium carbonate equivalent (LCE) in 2021 to 34 million tons in 2030, but we believe that the lithium industry is able to supply enough products to meet the rapid development demand of the lithium battery industry. It is estimated that from 2021 to 2030, the supply of lithium using traditional preparation process is expected to increase by more than 300%; In addition, direct lithium extraction (DLE) and direct lithium production (DLP) technologies are expected to become important driving forces, enabling the lithium industry to meet the soaring demand more quickly. Although DLE and DLP technologies are still in their infancy and are vulnerable to fluctuations caused by the industry's "hockey stick" [1] demand rise curve and lead time, these two technologies have great potential in increasing lithium supply, reducing the industry's carbon footprint and reducing costs. At present, the published DLE and DLP output will account for about 10% of the lithium supply in 2030, and a number of projects using traditional lithium production technology are also under planning.

However, it is not easy to meet the lithium demand in the market. Despite the impact of the COVID-19, the sales of electric vehicles still increased by about 50% in 2020, and doubled to about 7 million in 2021. The soaring demand for electric vehicles has driven the lithium price to soar by about 550% in a year. At the beginning of March 22, the price of lithium carbonate has exceeded 75000 dollars/ton, while the price of lithium hydroxide has exceeded 65000 dollars/ton (the five-year average price is only about 14500 dollars/ton). At present, lithium is used in almost all vehicle power lithium batteries and consumer electronics. Lithium batteries are also widely used in many other scenarios, such as energy storage, air vehicles, etc. As battery capacity varies due to the proportion of active materials, various new battery technologies have entered the market. There are still many uncertain factors about how the battery market will affect the future lithium demand. For example, the lithium metal negative battery, which can significantly improve the energy density of the battery, requires almost twice as much lithium per kilowatt hour as the graphite negative battery currently in common use.

Will there be enough lithium in the future to meet the needs of a new electric world? This issue concerns every link of the value chain, such as mining enterprises, refineries, battery manufacturers and vehicle manufacturers.

Several factors affecting lithium demand

McKinsey expects that the lithium battery market will continue to rise at a compound annual growth rate of about 30% in the next decade. By 2030, it is expected that a total of 4000~4500 GWh of lithium battery will be required for electric vehicles, energy storage systems, electric bicycles, electric tools and other battery intensive application scenarios (see Figure 1).

In 2015 not long ago, the demand for lithium from the battery industry accounted for less than 30%; The important lithium demand comes from the ceramic and glass industries (35%) and industrial applications such as grease, metallurgical powder and polymer (more than 35%). By 2030, the proportion of lithium demand in the battery industry is expected to reach 95%. According to the two scenarios listed in Figure 2, the total demand will increase at an annual growth rate of about 25%~26% to 3.3~3.8 million tons of LCE (see Figure 2).

Future lithium supply

In the face of soaring demand, should the world be worried about the future lithium supply? In 2020, the lithium output will be slightly higher than 410000 tons of LCE; In 2021, it will exceed 540000 tons, up 32% year on year. In McKinsey's current benchmark scenario analysis, the lithium demand will reach 3.3 million tons in 2030, with a compound annual growth rate of 25%. Due to the short lead time for lithium preparation, the known lithium supply in 2030 is about 2.7 million tons; It is expected that the remaining demand will be filled by the new green and brown land expansion projects.

At present, almost all lithium mining is concentrated in Australia, Latin America and China, with the total output accounting for 98% of the world in 2020. A number of upcoming projects are likely to bring new players, and expand the territory of lithium mining to Western Europe, Eastern Europe, Russia and other CIS countries. These outputs should be sufficient to drive supply growth at an annual rate of 20% to reach more than 2.7 million tons of LCE by 2030 (see Figure 3).

Although the supply and demand forecast shows that the supply and demand balance will be maintained in the short term, the industry may still need to start a new batch of production before 2030. It is predicted that the lithium output to make up the supply gap will come from the following sources: emerging conventional lithium mining and lithium extraction projects in salt lakes, unconventional geothermal or oilfield brine lithium extraction projects, and projects that have not yet been identified. At the same time, new technologies such as DLE and DLP are expected to enhance oil recovery and boost production. In addition, as in 2018, DSO also helps to mitigate the risk of short-term shortage of supply (see Figure 4).

Early conventional lithium assets

From Australia, Chile, China and Argentina, and other old lithium producing countries, to Mexico, Canada, Bolivia, the United States, Ukraine and other countries with newly proved lithium resources and reserves, to Siberia, Thailand, the United Kingdom, Peru and other areas that are usually unrelated to lithium mining, conventional "white gold" mineral exploration is being carried out. As the feasibility of some of these early projects is verified, we expect that the industry will announce a batch of new production in 2022, including a batch of conventional brine projects with lithium content between 200 and 2000 ppm, as well as a batch of hard rock lithium assets, with grades generally between 0.4% and 1.0% (see Figure 5).

Unconventional brine projects (geothermal, oilfield brine)

Another batch of production may come from unconventional mineral deposits: geothermal and oilfield brine projects with grades ranging from 100 to 200 ppm. The former focuses on the dual goals of supplying clean geothermal energy and lithium simultaneously. Although it has not yet been verified in commercial scale, there are some financially feasible projects in Europe and North America, and some early assets are in preparation. We expect that with the continuous development of technology and the validation of various concepts, more geothermal brine lithium extraction projects will appear on the global lithium industry map. Some vehicle manufacturers and automobile companies have started to test geothermal lithium projects with lower technical requirements. For example, Renault Group, Stellantis and General Motors have signed a number of strategic cooperation and off take agreements for geothermal brine lithium extraction projects in Europe and North America.

In addition, projects in North America focus on extracting lithium from oilfield wastewater. Although the lithium grade of such projects is low, if there is appropriate technology, it can also be regarded as an additional lithium source supplement.

Direct lithium extraction (DLE)

To become a reliable source of lithium supply, geothermal or oilfield brine lithium extraction projects must have a set of proven DLE processes. At present, some companies are testing various DLE processes. Although the methods are different, the concepts are the same: use adsorption, ion exchange, membrane separation or solvent extraction to let brine flow through a certain lithium adsorption material, and then remove lithium carbonate or lithium hydroxide through eluent.

DLE technology has a bright future. At present, not only unconventional lithium extraction companies but also companies focusing on "typical" brine lithium extraction assets are considering adopting this technology. The potential benefits of DLE include:

Eliminate or reduce the carbon footprint of evaporation pool

The production time is shorter than that of traditional brine lithium extraction method

Increase the recovery factor from about 40% to more than 80%

The use of fresh water is lower, which is the decisive factor related to mining in water scarce areas

Compared with the traditional brine lithium extraction process, the use of extractant is lower and the product purity is higher (less impurities such as magnesium, calcium, boron, etc.)

At present, only adsorption DLE technology is commercially available in Argentina and China. If DLE technology can be popularized on a large scale and applied to various brine projects, it will be able to optimize the existing production by improving the recovery factor, reducing the operating cost, etc., and improve the environmental impact of the project (see Figure 6).

Direct lithium production (DLP)

Similar to DLE, DLP technology uses polymers to adsorb lithium metal, and then extracts lithium and puts it into an electrolytic tube to make the final lithium product. If successful, this lithium production process is expected to have a significant impact on the supply.

Direct delivery raw ore (DSO)

If the production deployment is delayed, there is another way to make up for the risk of short supply shortage, that is, to supply the market with direct delivery raw ore (DSO). Low grade spodumene concentrate can be put on the market in a very short lead time (less than a year for the brownfield project), and the resulting sales will help to build a large-scale spodumene processing plant. Refining DSO is more costly and challenging, but the situation in 2018 shows us the possibility of this method. At that time, facing the high price and the market environment of shortage of supply, China's refineries directly imported low-grade spodumene concentrates with lithium oxide content less than 1.5% (lithium content only 0.7%) from Australia, meeting the market demand.

recycling

Whether lithium batteries can be recycled has become a common concern. The expected life of the battery for passenger cars is 10 to 15 years. In addition, the energy storage industry has the feasibility of using discarded electric vehicle batteries. During the second decade of this century, the battery recycling rate is expected to increase, but it cannot reach the level of overturning the existing pattern. Through different recycling processes, the lithium recovery rate in waste batteries will be between 0 and 80%. By 2030, regenerated lithium is expected to account for slightly more than 6% of the total output (see Figure 7).

Substitution risk

Another question is, will lithium be replaced? Most grid scale energy storage application scenarios have a series of alternative battery technologies with varying degrees of development, such as vanadium flow battery, zinc air battery, sodium sulfur battery, sodium nickel battery, etc. However, there is no substitute for lithium battery to meet the requirements of electric transportation. The only possible choice is sodium ion battery, but even if the technology is fully mature and put into use, it can only replace some low performance application scenarios. To sum up, by 2030, the risk of lithium demand decline caused by substitutes is small.

Next Steps

So, can the world get enough lithium to support the upcoming electric vehicle revolution? We have confidence in this, but we need to take concrete actions at all links of the lithium industry value chain:

Invest in new technologies. For example, DLE technology can improve the lithium output of conventional brine projects by improving the recovery factor; At the same time, this technology also makes it possible to extract lithium from unconventional geothermal or oilfield brine.

Explore and develop new projects. In 2021, almost 90% of lithium mining activities will be concentrated in Australia, Chile and China. Expanding new mineral resources to other regions is conducive to establishing a larger resource exploitation base.

User demand alert. Depending on the development of battery technology, the industry will produce more lithium carbonate or lithium hydroxide. Accordingly, vehicle manufacturers and relevant digital manufacturers and other end users can determine the specification and quantity of lithium products required in advance, send an early warning signal, and leave enough time for mining enterprises to meet the market demand.

notes:

【1】 It refers to the sudden increase of demand after a relatively stable period

Author:

Marcelo Azevedo is a global associate director partner of McKinsey, based in London;

MagdalenaBaczy ń Ska is a consultant of McKinsey, resident in Wroclaw Branch;

Ken Hoffman is a senior expert of McKinsey, based in New Jersey Branch;

Aleksandra Krauze is a McKinsey consultant based in Warsaw.

The author thanks Zhou Guansong, Ma Junjie, Nicol Campagnol and Stephan G ö rner for their contributions to this paper.

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