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The Tribulations of Lithium

There are few more frustrating things for a metal merchant than a train leaving the station without you on it. The lithium train is one of them.

No minor metal merchant will have been unaware of the slow burning of the lithium market over the last ten years. Following the VW diesel emissions crisis and the emergence of Tesla, that burn has become propulsive.

But how to join the train?

All minor elements have their unique properties. Lithium’s is its density – it is the least dense element in the periodic table (0.534g per cubic centimetre compared with, say, rhenium at 21.02g per cu cm). It’s other difficulty is flammability. Both of these factors are where the problems start. In fact, so light is lithium in its metal form in relation to volume, that only 8 tonnes may be transported in a 20 foot container. It means transport costs are punitive. As regards to flammability, so great is lithium’s affinity for oxygen (a factor that is one of the positives in relation to batteries) that the goods must either be packed, as the Soviets did, under oil, or as others do, under vacuum. Adding these considerations together, most have concluded that lithium in metal form is not going to be the most attractive route to trading lithium for the minor metal merchant.

So what other options are open to the average lithium fancier in this 170,000 tpy market?

About 50% of the world’s lithium is transported across the globe as lithium carbonate or in raw material for making carbonate. The miners who process brines from ancient salt flats (sea-beds raised by the geological movements of millennia and dried by the sun) produce ‘carbonate’. The problem for the trader is that what is generated at mine is not useable except as a raw material to process further into one of lithium’s many end uses. To take the main example, batteries, the lithium is of no use until processed into cathode materials and, of those, there are many formulations. To participate properly with carbonate, you need either to own a process or have access to one; ie, be a battery maker (Panasonic, say) or a supplier to one (Umicore, for example).

So what about lithium hydroxide? LiOH, as it is known, and which makes up about 20% of present supply, may be eminently desirable in the market but the problem, once again, is that miners do not make it and the troubled lithium carbonate is its raw material. Control the carbonate and perhaps you could control the hydroxide? But in practice, almost no one who knows how to make hydroxide wants to let in a trader to toll convert.

I am not normally a negative person, but wherever the merchant sits in the lithium tree he is likely to find himself on a branch sawing into the wood supporting him.

Lithium mining host countries

Other issues concern the character of the countries that host lithium mining. Chile is the world’s largest, and has long classed its lithium assets as strategic. Needed in some types of control rods for nuclear plants, lithium’s strategic classification origins come from this, not for reasons of resource nationalism. But both here and in Bolivia, the effort not to waste this resource of the moment is driving policy. In Chile, a political battle is being waged over the dominance of its largest producer, SQM, by old family interests, and control is being challenged by central government.

In Bolivia, the asset plays directly into the narrative of the indigenous government of Evo Morales who has declared that the raw material must be upgraded into a value added product within the country rather than shipped out as a cheap resource. In Mexico, the Sonora Lithium Project, owned by Bacanora has good prospects. However, owning a resource is not the same as having a product, and their production of battery-grade carbonate remains at pilot stage.

Meanwhile, in Australia, where the lithium resource comes from the underground mining of spodumene at Greenbushes-Talison, output at the world’s second largest producer (57,000 tonnes), is pre-sold to its two largest shareholders in ore state for on-processing by Tianqi (49%), Rockwood Lithium (51%). So, not much room at the inn here either.

So where can our homeless minor metal merchant go in search of units to trade in what is being hyped as “the new oil”?

Russia as a supplier

My own failed idea was to obtain supply from Russia. Here, Russia, not usually known for being ahead of the curve, was in fact so far behind the curve that they found themselves, strangely, out in front, blinking in the glare of world interest. Long used to husbanding minor metals fractions without any commercial imperative to do so, lithium was being made in hydroxide form for their strategic nuclear industry. As in so many other cases, the Russian way had been to make the units according to metallurgical reasons, not those of the market. Thus it just so happened that when Tesla and others discovered their thirst for lithium in hydroxide form, it was the Russians who had an existing process for it. That is how they had always done it.

So here surely was the classic merchant opportunity; to straddle political systems and geography. We did all our due diligence, spent the money on testing samples and making relationships, and a year after completing our research into this exciting market we were ready to pull the trigger and buy our first container for $240,000. Unfortunately for us, it was the day the market doubled to $24 per kg and our first container would now cost $480,000.

Why or how the price doubled was not unexpected – that’s why we wanted to get into it in the first place – it was just the fact that it happened before we were ready that was galling. For me, two factors had come together – the long-term one was the world’s concern about climate change. If lithium batteries would mean that energy from solar and wind power could be stored, thus meaning the sun would not need to shine nor the wind blow to have 24-hour energy, then surely this technology would have to come through.

But the touch paper was lit for me on a specific day – it was in September 2015, the day Volkswagen was exposed for its use of emission-defeat devices. It seemed to me, at that moment, that the world had changed. It meant ordinary car drivers – myself included – who had been told diesel was a better option for the environment, had been defrauded. How better to express this as a trader than by buying lithium?

Lithium price maturity to come

I have been asked how prices are discovered on a market where so few independent parties are involved, no exchange exists, forms are intermediate, and trades difficult to track. I have always said that you would be able to leave me in a darkened room without internet for a week, and I would still know the price of rhenium. The same for lithium – the price to a merchant is a reflection of what we are prepared to pay, so a reference is not needed at such times. Right now I am aware of the price but not about to re-join the train at $24 per kg. As time progresses, and more producers come on stream, my feeling is that merchantable tonnage will escape and leak into the market. At that point, Metal Bulletin reporters will be able to poll the market and get far more data than at present. Today, the market remains immature and dislocated. In due course this is bound to change but, judging from illiquidity in other minor metals, the prospect of a terminal market for any form of lithium is unlikely.

The email from Russia at the end of 2015 rejecting our proposals at $12 per kg came back to us as a kind of mirthless laugh. The train had left the station and we were on the platform, in the rain, and without a coat. A Chinese end-user with a factory full of orders to fill is no match for a small merchant in Hampton Court in such a situation.

Today, I imagine there are many merchants at this moment trekking to Siberia to try and encourage further production of lithium hydroxide from the region. If it was not Russia, the prospects would be interesting. Those with the technical know-how would be doing deals with the new mines in Mexico, such as Bacanora, to transfer technology in return for shareholdings or output. But Russia remains landlocked politically and mentally, and when it comes to being fleet of foot in such matters Russia’s psychological barriers to free enterprise are deep, high and wide.

There was really only one lesson for me to take from all this – and it was just “you can’t win them all…”

Published August 8th 2016 on www.metalbulletin.com