The decade ahead will bring massive structural shifts as economies around the world transition away from fossil fuels. These changes have already given rise to new strategic commodities, such as rare earth minerals, cobalt, and lithium to name a few. The extent to which major economies are willing to clash over these strategic commodities in order to secure reliable supply chains remains to be seen, and will largely be a function of the global trade system going forward. However, the fact remains that supply chain security will be a matter that no policymaker has the luxury of ignoring.

This article will examine the factors underpinning demand for lithium.

Background

Lithium is a silvery-white alkali metal that is lighter, more stable, more environmentally friendly to extract, and more energy dense than alternative battery chemistry elements such as nickel-metal and lead-acid. These properties have helped make lithium-ion batteries an essential input in electric vehicles and intermittent renewable energy storage (solar, wind, e.g.) – industries that are expected to boom as the global economy transitions away from fossil fuels over the next decades. However, global lithium demand is not completely dominated by battery technology – at least not yet. Just under half of current demand stems from industrial applications (glass and ceramics, lubrication, polymers, etc.).

Drivers of Lithium Demand

Lithium, or ‘white petroleum’ as it has sometimes been called, has become a magnet for bullish market sentiment owing to anticipated exponential growth in the electric vehicle and renewable energy industries.

EVs

Electric vehicle production currently accounts for around one third of global lithium production. This proportion is widely expected to grow over the next decade, reaching as high as 75% by 2030.

Electric vehicles (EVs) are powered by as many as 5,000 battery cells, each of which contains a few grams of lithium. In total, this can equal up to 10 kilograms of lithium per vehicle; put another way, approximately 90 cars can be produced from a ton of lithium metal (and it takes 5.3 tons of lithium carbonate to make a ton of lithium metal).

According to the IEA, EV sales reached 2.1 million globally in 2019 – a 40% year-on-year increase from the year before – which represented around 2.6% of all global vehicle sales. At the onset of 2020 there were around 7.2 million EVs on the road; 47% of them could be found in the People’s Republic of China.