Will Lithium Boom, Driven By EVs and Homes, Surpass Other Commodity Supercycles?

By  //  May 15, 2023

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In a world where hyperinflation is turning millionaires into thousandaires, lithium might emerge as one of the unlikely saviors. As electric vehicles (EVs) and solar energy adoption skyrocket, lithium has become the golden ticket for those seeking refuge from traditional inflation hedges like gold and cryptocurrency: lithium could well outperform gold, silver, palladium and cryptocurrencies. 

This insatiable demand for lithium has experts speculating that its boom could surpass all other commodity supercycles in history, reshaping global markets and creating new opportunities for investors.

Understanding Commodity Supercycles: A Brief Overview

Commodity supercycles are periods of prolonged, above-trend movements in a wide range of commodity prices, often driven by a combination of strong demand, constrained supply, and various macroeconomic factors. These cycles can last for several years or even decades, creating both winners and losers in the process. Studies like Bilge Erten and José Antonio Ocampo’s and Roderick G. Eggert’s highlight the growing importance of lithium in the renewable energy and electric vehicle markets. Factors such as the clean energy transition and increasing adoption of electric vehicles, as discussed in these papers, suggest a bullish outlook for lithium, positioning it as a key component in the rising demand for clean energy technologies and critical resource for the future.

The Unprecedented Growth of Electric Vehicles (EVs)

The global push for cleaner transportation has led to an explosion in the demand for EVs, with sales expected to grow exponentially in the coming years. This massive shift towards electric mobility is driving the demand for lithium, a key component in the batteries that power these vehicles. It has been well documented that this unprecedented growth in EV adoption is outpacing anything seen before in the automotive industry.

Solar Energy: Another Driving Force in Lithium Demand

In addition to the EV revolution, the transition to renewable energy sources like solar power is further fueling the need for lithium. Solar energy installations have experienced rapid growth worldwide, with an increasing number of homes and businesses opting for solar panels to reduce their carbon footprint and save on energy costs. As energy storage becomes more important, lithium-ion batteries play a critical role in storing and managing the energy produced by solar systems.

The Role of Lithium in Batteries for EVs and Solar Energy Storage

Lithium-ion batteries are the preferred choice for both EVs and solar energy storage due to their high energy density, long cycle life, and relatively low self-discharge rate. These qualities make lithium an indispensable component of the global transition to sustainable energy sources, further exacerbating the demand for this valuable resource.

Comparing the Lithium Boom to Previous Commodity Supercycles

While other commodity supercycles, such as those of oil, gold, and copper, have significantly impacted global markets and economies, the lithium boom has the potential to surpass them all. The driving factors behind the lithium boom – the global transition to electric mobility and the adoption of renewable energy sources – are unlike anything seen before with other commodities. As a result, the scale and duration of the lithium supercycle may very well outstrip its predecessors.

This brings us to a much needed comparison between lithium and oil: Remember how the oil industry has been a rollercoaster of ups and downs since, well, forever? Now, we’re all wondering if lithium will hop on the same wild ride. Last year, lithium prices skyrocketed like a tech billionaire’s ego, thanks to the surging demand for lithium-ion batteries and some pesky supply chain hiccups such as the pandemic.

Back in February 2022, battery-grade lithium carbonate was strutting its stuff at a whopping $72,000 per metric ton – that’s nine times pricier than its 2020 price tag! So, are we about to witness a lithium version of the oil price saga, when it leaped from a humble $20 in the early 2000s to a jaw-dropping $150 in 2008? Those who are distracted by lithium’s recent short lived decline should not count on further drops and need to remain cognizant of the tough geopolitical reality that is unfolding in the world. 

The Impact of Mega-Mergers in the Mining Industry

The growing demand for lithium has led to a new wave of mega-mergers in the mining industry, as companies seek to secure resources and capitalize on the lucrative market. These mergers have the potential to reshape the mining landscape, increasing efficiency and driving technological advancements.

One recent example is US-based Livent and Australian firm Allkem, which agreed to a $10.6 billion merger, forming a globally integrated lithium chemicals business. This deal aims to foster a more resilient supply chain with improved cash flow and a robust combined balance sheet.

Challenges and Opportunities in the Lithium Supply Chain

Despite the optimism surrounding the lithium boom, there are challenges and opportunities that lie ahead. One notable trend is the potential nationalization of lithium resources, which may choke off supply and cut out certain countries from the supply chain due to geopolitical wrestling. This trend could create both winners and losers, as countries with significant lithium reserves may benefit from increased control over resources, while others may face supply chain disruptions and rising costs.

An outright challenge: 

Chilean President Gabriel Boric’s recent announcement to nationalize the country’s lithium industry has raised concerns over the future of cheap lithium. Despite Tesla CEO Elon Musk’s nonchalant response, suggesting that Chile’s lithium mines aren’t crucial, Chile’s Economy Minister Nicolás Grau counters that the nation possesses 40% of the world’s lithium reserves and ranks as the second-largest producer. Given that Chile accounted for nearly one-third of global lithium production in 2022, producing an estimated 39 thousand metric tons, it’s clear that actions by leaders like President Boric could significantly impact the lithium market, potentially disrupting global supply and affordability.

Is Lithium clay a big opportunity? 

Does it mean that if 40% of the worlds’ lithium is “not crucial”, that we are really expecting Lithium explorers who are actively looking for lithium clay in America to come through for North American interest? This could mean that any company touching lithium clay, would be regarded as a big opportunity by investors who seek to secure American lithium. 

It is no longer a secret that US Critical Metals Corp. (USCM) is advancing its permitting efforts for a diamond drilling program of up to 2,000 meters at the Clayton Ridge Lithium Property in Esmeralda County, Nevada. Spanning approximately 3,600 acres, Clayton Ridge is situated within the only lithium-producing region in the US. Upon meeting certain conditions in 2023, USCM will acquire a 100% interest in Clayton Ridge. The region’s lithium genesis is volcanic in nature, and the property is strategically located near Century Lithium Corp. and Noram Lithium Corp. USCM has filed a Notice of Intent with the Bureau of Land Management and engaged Westland Engineering & Environmental Services, Inc. for a Phase 1 Diamond Drilling program consisting of up to 14 drill holes. The drilling aims to test claystones up to 250 meters deep, providing crucial data on the thickness and grade of lithium-bearing units. The initial phase will focus on testing shallow, east-dipping lithium-bearing units to establish the lithium-bearing complex’s floor. As the maiden drill program for Clayton Ridge, the company expects to adjust the depth, bearing, and dip of the drill holes as new data becomes available.

Continued exploration abroad:

Despite news like the nationalization of lithium in Chile, the door is not completely shut, as American companies still get to explore lithium abroad. For example, the Peruvian division of the Canadian mining company, American Lithium Corp (LI.V) which announced that it has obtained approval from the local authorities of the South American country to conduct further explorations near its existing lithium project.

The Geopolitical Implications of the Lithium Boom

The race for lithium resources has intensified geopolitical tensions, as countries vie for control over this strategic resource. With lithium playing a pivotal role in the global energy transition, securing access to lithium deposits and refining capabilities has become a priority for many nations. This has led to increased competition and, in some cases, strained relationships between countries with lithium reserves and those seeking to secure their supply.

Investing in the Lithium Supercycle: Risks and Rewards

For investors, the lithium supercycle presents a unique opportunity to capitalize on the growing demand for this vital resource. However, as with any investment, there are risks involved. Market volatility, regulatory changes, and potential disruptions to the lithium supply chain can impact the value of lithium-related investments. To navigate these risks, investors should carefully consider the specific companies, technologies, and geographies involved in their lithium investments.

It would seem prudent to point out that there will be those who reap substantial gains, and equally, those who face hefty losses:

If commodities were a one-way ticket to the top, everyone would swap rental apartments for lithium stakes. But the reality of commodity investing is far from simple. Price paths resemble roller coasters, not smooth elevators. This volatility can trip up new investors who panic-sell during dips, missing subsequent rebounds. Yet, for seasoned investors, these wild swings provide opportunities. They can buy during lows, and sell during highs, turning turbulence into profits with patience and market understanding.

The Future of Lithium and the Global Energy Landscape

As the world continues to embrace clean energy solutions and electric transportation, the demand for lithium is expected to remain strong for the foreseeable future. Innovations in battery technology and recycling efforts may help to alleviate some pressure on the lithium supply chain, but the scale of the global energy transition suggests that lithium will play a central role in powering the world for years to come.

Finally, it is quite possible that the lithium boom has the potential to surpass other commodity supercycles due to the unprecedented demand driven by the global adoption of electric vehicles and solar energy. While there are challenges and uncertainties along the way, the lithium supercycle presents a unique opportunity for investors, businesses, and nations to reshape the global energy landscape and embrace a more sustainable future.

Disclaimer: This article is intended for informational purposes only. It does not constitute investment advice, trading advice, or any other type of financial advice, and it should not be treated as such. Readers are encouraged to conduct their own research and consult with a certified financial professional before making any investment decisions.