Green lights for lithium producers
Massive growth in the electric vehicle market has spurred global interest in Australia as a source of sustainably produced lithium. Two industry leaders share their insights with Westpac IQ on how the sector is powering ahead.
Lithium is central to the production of electric vehicle (EV) batteries and, as countries take steps to decarbonise their economies over the next decade, electric vehicle sales are predicted to increase tenfold or more.
Australia is ideally placed to take advantage of the resulting lithium boom. We have the largest reserves in the world of hard rock spodumene, which is used to produce lithium hydroxide – the best lithium material for long-distance, high-quality electric vehicles.
And, because it can be produced with renewable energy and using a minimal amount of water, Australia’s lithium is likely to be in high demand from electric vehicle manufacturers whose customers want to know that the materials have come from sustainable sources.
Industry leaders, Ian Hansen, Managing Director, Wesfarmers Chemicals, Energy & Fertilisers, and Paul Brown, Chief Executive, Commodities at Mineral Resources, outline the state of Australia’s lithium industry and highlight opportunities for the future.
What are the major applications for lithium and how will that drive demand in future?
Ian Hansen: Lithium has been used for a long time in things like manufacturing greases, ceramics and glasses and, over the last 10 to 20 years, it's found application in rechargeable batteries, particularly phones.
But the great opportunity for lithium is in batteries for electric vehicles. We see phenomenal growth in electric vehicles over the next 20 or 30 years, as the world shifts from fossil fuel to renewables, and in the requirement for lithium batteries because lithium is the lightest metal available and gives up its electron really easily.
There were just over three million electric vehicles sold around the globe in 2020. In 2025, we expect it to be around about 17 million. Then in 2030, probably somewhere between 35 and 40 million vehicles.
What will the global lithium market be worth?
Paul Brown: The battery-grade lithium industry [globally] is an AUD 8 billion industry today. EVs constitute five per cent of global vehicle sales and are expected to be more than 25 per cent of the market by 2030, as carmakers bring forward new electric vehicle models. To supply these vehicles, the battery grade lithium market will need to grow at more than 30 per cent a year.
What are the major export opportunities?
Ian Hansen: Most Australian lithium is produced as a concentrate at the various mines and is sent primarily to China for processing into either lithium carbonate or lithium hydroxide, the chemicals used in batteries.
The other major sources of production globally are Chile and Argentina. They produce lithium carbonate using brine-filled salt lakes, which they then sell directly to the battery manufacturers, or to China for further refining.
What are Australia’s advantages as a supplier of lithium?
Paul Brown: Australia has the largest reserves in the world of hard rock spodumene, which is used to produce lithium hydroxide for longer distance and better performing cars like Tesla.
The product that comes from the brine in South America produces lithium carbonate, which is suited for travelling short distances. But if you look at the growth market where a lot of these electrical vehicles are, they're more of the high-end cars like Mercedes and BMW.
Ian Hansen: Lithium is available anywhere in the world, but to extract it economically you need a decent sized ore body and decent concentration.
There's a cap on the quantum that can come out of South America’s brine manufacturing process, whereas in Australia, there's no cap on how many of our hard rock deposits get exploited.
Our second competitive advantage is that the people who are going to buy premium battery electric vehicles are very conscious of their carbon footprint. Australia can extract and refine the lithium product utilising renewable energy, which we should have plenty of given the sunshine out here. And, we have a very stable political situation and good ESG credentials in general as a first world country.
What are some of the major projects underway?
Ian Hansen: There are three lithium hydroxide refineries either under construction or undergoing commissioning here in Western Australia at the moment.
There's Tianqi's refinery, which is undergoing commissioning in Kwinana just south of Perth. And next door to the Tianqi Refinery is our Covalent Refinery, which is about to be constructed. Covalent is a joint venture between Wesfarmers and a company called SQM, which is a Chilean-based company that produces lithium via that brine process mentioned before. They're another key global player in the lithium market.
Paul Brown: We're about to reopen our Wodgina mine, which is a joint venture between ourselves and US company Albemarle. It's a tier 1 asset, one of the largest hard rock deposits in the world. It has the capability to produce over 750,000 tons of product per annum, which will be exported to China for processing because Albemarle has several facilities over there.
We’re also constructing the Kemerton lithium hydroxide plant in a joint venture with Albemarle and expecting first sales later this year. And we’ve recently announced a new joint venture to own additional lithium conversion assets outside of Australia to be jointly funded by MRL and Albemarle.
Are there opportunities in this area for sustainable or green finance?
Ian Hansen: Wesfarmers has recently negotiated sustainability-linked loans and bonds matched to some KPIs on sustainability associated with our existing operations in Wesfarmers Chemicals, Energy & Fertilisers and some broader Wesfarmers sustainability criteria.
There's no reason to think that the same couldn't apply to lithium investment. One of the benefits that Australia could bring to the global market is that we could be seen to be a much lower carbon footprint source of lithium for electric vehicle batteries, or we could use less water in the production of lithium, or we could generate less greenhouse gases in the processing of lithium hydroxide. So there’s a range of metrics you could use that could be linked to some form of sustainable finance.
Paul Brown: There's no doubt that as financial institutions around the world are looking for more sustainable investment options, whether it be in debt markets or equity markets, investors are putting a premium on green solutions – and lithium is a green solution.
You're seeing the way that investors are behaving by the way they're pricing bonds and equities and we think that's beneficial to our position and will ultimately lower our cost of capital.
What are the impediments to progress?
Ian Hansen: There's been a lot of volatility in the pricing of lithium. The prices went up significantly back in 2017-2018 and then a whole lot of supply came online and the price dropped right down. It's gone back up again, and it needs to go or remain higher to encourage more investment in the sector, but I think that volatility concerns some investors.
Paul Brown: Australia is blessed with some very good resource potential. And certainly, we are exploring for additional deposits. Over time, our expectation would be that we will be able to bring other deposits to market. The key is you need to have the right quality and you need to have the right access and you need to have the right government approvals.
What are the key government reports or roadmaps for this sector?
Paul Brown: There are various State and Federal Government agencies that have publicly available information, including the Future Battery Strategy from the West Australian government.
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