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Lithium is on the centre of the vitality transition, essential to the manufacturing of batteries for electrical vehicles. On this movie we’ll take you on a journey from Chile to England to Norway, to discover two huge questions hanging over this business and everybody who invests in it. Can it enhance manufacturing sufficient to satisfy surging world demand? And might it accomplish that whereas minimising damaging social and environmental impacts?
Chile has the world’s largest reserves of lithium. The majority of its manufacturing is finished by the Santiago-listed firm, SQM. And by far its greatest mine is right here on the Salar de Atacama, an enormous salt flat in the course of Chile’s Atacama Desert, the driest place on this planet exterior Antarctica.
This salt flat shaped over a whole bunch of 1000’s of years, as rainwater flowed down from the close by mountains, amassing minerals, together with lithium, alongside the best way. Underneath its floor is brine, extraordinarily salty water, with a small however precious lithium content material. The brine is put into the primary of a collection of swimming pools, the place the water begins to evaporate away.
Because it passes via every pool the brine turns into extra concentrated, subsequently with a better proportion of lithium, as extra water evaporates and different minerals are eliminated. On the final of the swimming pools right here on the Salar, the lithium content material reaches practically 5 per cent. The brine is then loaded into vans that take it to SQM’s processing plant exterior the coastal metropolis of Antofagasta, 200km to the southwest.
There it’s was sacks of lithium carbonate and lithium hydroxide, that are then shipped to producers, primarily in Asia, to be used in battery manufacturing. This plant accounts for practically a fifth of the world’s lithium processing capability.
However whereas the lithium sector has put Chile on the centre of one of many world’s highest-growth industries, some folks within the area surrounding the Salar de Atacama, reminiscent of entrepreneur Rosa Ramos, are nervous that brine extraction by lithium corporations could possibly be depleting their water sources.
SQM says that it has been cautious to minimise the environmental impacts of its actions and that research carried out by its personal consultants and by exterior teachers present no grounds for concern about damaging results on native communities’ water sources. However the firm acknowledges that whereas it has been investing in research on this query and offering knowledge to exterior researchers, there’s a scarcity of actually impartial data.
And for scientists like Mariana Cervetto, who has labored extensively on the Salar de Atacama and who we met up with in Chile’s capital of Santiago, with out that impartial knowledge from the federal government or from different events unaffiliated with the mining business, it is going to be not possible to place this matter to relaxation.
It is fairly troublesome to have goal data to know if there’s an influence or not. For instance, in Salar de Atacama, the fashions for me are fairly convincing. However I nonetheless have my small doubts. And to unravel these doubts I haven’t got the data. So I simply should belief their fashions and perceive that they’re coherent.
And from that perspective, in Salar de Atacama notably, the fashions and the data they present would present that there is not an influence from the brine extraction, not even in lagoons and never even on the freshwater availability.
For buyers in monetary hubs, like London, who’re pumping billions into the provision chain for lithium and different important minerals, issues about sustainable manufacturing are excessive on the agenda. This sector affords enormous potential rewards. However at a time when funding managers are underneath huge scrutiny over their environmental, social, and governance credentials, it comes with massive dangers too.
Brian Menell is the founding father of TechMet, an funding firm that has acquired stakes in a number of companies concerned within the extraction and processing of lithium in addition to different minerals essential to the vitality transition.
BRIAN MENELL: Mining, by its nature, will not be sustainable. You are exploiting a finite useful resource. And nothing that develops a pure supply is with out some environmental influence and carbon footprint.
Nonetheless, I believe it is unsuitable to see the mining business or the lithium manufacturing business, particularly, as one that may’t be effectively ruled and clear and low environmental influence and low carbon footprint. And loads of what we’re doing at TechMet is to make sure that all of our tasks meet very excessive requirements.
Menell says that the vitality transition and the surging demand it’s bringing for metals, like lithium, presents a once-in-a-century funding alternative.
If Tesla are to achieve their goal of manufacturing 20mn electrical automobiles a 12 months by 2030 that alone would require virtually seven instances the current whole world annual provide of lithium.
And that is earlier than GM or Ford or VW or the Chinese language, who’ll proceed to supply two-thirds of the world’s batteries and two-thirds of the world’s electrical automobiles and are rising faster than us and have a 15-year head begin in managing the provision chain. There isn’t any mannequin or no situation the place these metals don’t have to go up in worth a lot, a lot additional and keep up in worth a lot, for much longer.
And as international locations world wide start to fret about acquiring ample provides of those metals, Menell says much more funding might be wanted to make sure vitality safety. Particularly, he says, China has an unhealthily massive market share within the manufacturing of lithium-ion batteries and within the refining of lithium chemical compounds for them.
China’s been constructing important minerals processing capability over the past 15, 20 years whereas the remainder of the world was sleeping. And on account of that they’ve economies of scale that make them aggressive to some extent which creates huge challenges for the remainder of the world to steadiness or cut back. That is the one issue.
The opposite issue is the truth that the Chinese language state, within the pursuit of this long-term strategic goal of dominating the inputs into the vitality transition, have been ready to subsidise the low-margin components of the provision chain to be able to management the provision chain.
Main economies all through the world have been scrambling to drive better funding into lithium manufacturing. Within the US, Joe Biden’s current Inflation Discount Act has offered highly effective monetary incentives for brand new tasks on this area. The European Fee has adopted up with a proposed new legislation of its personal to drive manufacturing and processing capability for lithium and different important minerals.
So to offer us extra time to organize, I am asserting at present that we will ease the transition to electrical automobiles.
And whereas the UK authorities has not too long ago reduce a number of main clear vitality insurance policies, it says it’s dedicated to rising the nation’s home manufacturing of lithium. To get a way of its probabilities of doing so, we headed right down to the coastal county of Cornwall in south-west England.
Cornwall has a mining historical past relationship again to the Bronze Age, however the sector has been a shadow of its former self for the reason that late nineteenth century. Now some within the county are daring to hope for a mining revival pushed by two start-ups which are working to extract lithium from beneath the Cornish soil.
One among them is British Lithium, run by Australian father-and-son group Roderick and Andrew Smith. Australia is presently the world’s greatest producer of lithium, accounting for greater than 40 per cent of worldwide extraction in 2022. However Roderick Smith, a veteran of the Australian mining sector, says that Europe, together with the UK, is a extra engaging funding proposition.
I explored for, found, and constructed quite a lot of mines in western Australia, 4 or 5 of them. And Australia is nice to me. It is obtained a booming mining business. And naturally, the lithium business is booming there now too. However I believe one factor that is lacking, Australia will not be excellent at including worth to pure sources. It is the quarry of the world.
However they don’t have any automotive business, for instance. They do not make a single automotive in Australia. So they are not going to have a automotive battery plant. And the lithium mines which are being constructed there, it is not going into batteries. It is all going to China, the place they make batteries and make vehicles.
In distinction, argue the Smiths, their operation in Cornwall might be effectively positioned to serve producers of their area, together with a brand new battery manufacturing unit to be constructed by India’s Tata Motors in Somerset, 100 miles to the north-east.
The lithium that happens in Cornwall is exclusive on this planet. So we ended up constructing a pilot plant behind us, which was accomplished in 2021. And it makes use of a bodily separation methodology to take away the lithium mica out of the rock via bodily separation, make a focus. We then warmth that up, dissolve it in pure water, change the pH, and refine it into the ultimate battery-grade lithium carbonate.
We acquired authorities funding for R&D and towards constructing this pilot plant. And one of many necessities of the federal government funding was that we’ve an impartial benchmark evaluating our course of and our precise improvement towards present business.
And the carbon emissions are lower than half the perfect present producing hard-rock mine. And the water consumption is manner forward, definitely wanting on the brine folks. So it does stack up extraordinarily effectively.
Because the demand for lithium surges and producers just like the Smiths race to extend provide, buying and selling venues, just like the London Steel Trade, may play an essential position in protecting this market operating easily. The LME traces its historical past to 1571 and is likely one of the few exchanges on this planet nonetheless to depend on the open outcry system of buying and selling between people on its ground within the Metropolis of London.
In all probability over the subsequent 10 years, most market commentators anticipate the lithium market, in dimension, to maybe quadruple.
At the moment, nonetheless, virtually no lithium buying and selling is finished on open markets, just like the LME. Most gross sales are made via long-term agreements between producers and prospects, both battery makers or, more and more, carmakers themselves.
Pricing is not notably clear. Producers and customers usually enter into bilateral negotiations and use fastened costs which are set by the producers, which is kind of totally different to what you see in additional mature markets, like copper or aluminium, the place the business usually references index costs.
I believe it is truthful to say there’s a enormous quantity of uncertainty round how demand and provide will come into steadiness in future. And you may see that within the worth volatility in recent times, which has been very, very excessive. Perhaps simply to place it into perspective, at the start of this 12 months, the lithium hydroxide worth was round $85,000 per tonne.
Proper now, it is buying and selling at nearer to twenty-eight,000. So in lower than a 12 months, the value has come off by two-thirds. However in prior years, it is as a lot as quadrupled in a single 12 months.
Martin argues that the shift to index-based pricing will assist carmakers and battery producers to higher handle these worth fluctuations and provides them better flexibility and safety of provide. The LME can be seeking to handle issues about sustainability by introducing a passport system that ensures minimal requirements of social and environmental duty.
Greater than half of LME manufacturers are beginning to publish this data. And this will then be checked out by downstream customers to actually trust that the inexperienced EV that they are driving really has a low-production carbon footprint.
So the vitality transition is undoubtedly going to have a really massive influence on the worldwide metals market and by consequence on the LME as effectively, maybe the largest influence for the reason that rise of China within the early 2000s, which had a big impact on steel demand.
Chile’s enormous reserves of lithium have given this nation an opportunity to play a central position within the world vitality transition. And the federal government right here in Santiago now must guarantee that this delivers actual financial advantages for the nation as an entire.
In April 2023 the federal government of President Gabriel Boric, a left-leaning 37-year-old, introduced a brand new lithium technique that might carry main modifications for the business. Most notably, all new lithium tasks would have to be carried out via a partnership between private-sector companies and a state-owned mining firm, a transfer that was criticised by some as a type of nationalisation.
The brand new plan is a giant deal for SQM, whose present lease for lithium extraction expires in 2030.
In the present day, we’re estimating that the demand of lithium is round 930,000 tonnes. This would be the demand of this 12 months, which is 20 per cent larger than final 12 months. And we’re estimating that, by 2030, the demand of lithium may attain 3mn tonnes. In some optimistic situations we even have as much as 3.4mn, 3.5mn tonnes. So loads of lithium is required sooner or later. Meaning that we’ll want provide from each attainable origin.
Chile positively should be one of many future provide international locations, OK. In order that signifies that we have to develop. And the coverage that the Chilean authorities has introduced, in a manner, I see it as, to place some, to illustrate, clear guidelines of the sport for future provide from Chile.
The federal government’s technique would additionally encourage new lithium operations to make use of new types of know-how, reminiscent of direct lithium extraction, which might take away lithium from brine on the website of extraction after which re-inject the processed liquid again into the brine physique.
Nothing has been 100 per cent confirmed. So it’s essential to be 100 per cent certain that issues will work earlier than partaking totally in adopting these new applied sciences. And that is why I see it extra as a complement within the first years. However that signifies that brine course of, which is already at present very sustainable, may turn into much more sustainable sooner or later.
It isn’t as simple as we’ll pump right here and re-inject right here. We’ve got to suppose the place to inject, at what depth. Will it compensate the pumping? Its top from a hydrogeological perspective. It isn’t easy.
It isn’t clear whether or not Boric’s authorities will have the ability to get its new plan via parliament. Nevertheless it displays a wider race by international locations world wide to profit economically from the demand for important minerals. Some members of Chile’s indigenous inhabitants say that the brand new technique could not handle their issues in regards to the impacts of lithium mining.
Ariel León, a lawyer from Chile’s north, has been serving to a group in Chile’s Maricunga area within the southern a part of the Atacama to win authorized rulings towards lithium extraction close to their land.
Within the area of the Salar de Atacama, SQM has put a few of its lithium income in the direction of local people tasks, like this new lodge, which might be owned and run by the area people of Toconao. However group leaders right here say they nonetheless wish to see extra effort from the federal government and mining corporations to have interaction in session.
And a few argue that consumers worldwide want to start out enthusiastic about tips on how to cut back their consumption of sources in addition to their carbon emissions.
Underground deposits will not be the one supply of lithium. The extra the electrical automobile market grows so, in the end, does the provision of used automotive batteries, like those behind me, which might be crushed and separated into their constituent components. This facility in southern Norway is the largest battery recycling plant in Europe.
It is the principle operation of Hydrovolt, a three way partnership between Swedish battery maker Northvolt and Norwegian aluminium producer Norsk Hydro. For a number of years, due to robust authorities incentives, most new vehicles offered in Norway have been electrical, one thing that has now began to yield a rising provide of used batteries.
We’re positioned in Norway as a result of that is probably the most mature marketplace for EV vehicles in Europe. And we’re guaranteeing that each one these batteries are recycled in order that the supplies inside them might be reintroduced right into a round worth chain and turn into new batteries time and again and once more. We will recuperate, with at present’s know-how as much as 95 per cent of the important uncooked supplies.
This might be an especially essential supply of supplies to allow additional electrification. We are literally creating an above-ground mine. We’re a substitute for conventional mining. And that allows additionally a closed loop within the native markets as a result of we are able to set up the place these batteries finish their life and be certain that we’ve extra manufacturing of important uncooked supplies in that market.
So it will allow Europe to have its personal mine, in a manner, as a result of we create an above-ground mine within the house market, the place we produce important uncooked supplies to produce the cell producers with what they should construct new batteries.
The plain cause to be enthusiastic about this business is the gross sales of EV vehicles. We’ve got excellent statistics for that. After which you’ve some uncertainty associated to the lifetime of the batteries. However these batteries will have to be recycled in the end. So it is fairly apparent that the market will come. After which the query is who will turn into the winners on this market?
As for who would be the greatest winners and maybe the losers, too, within the world lithium revolution, that contest is now effectively underway.
And now we’re on this fourth Industrial Revolution, which is electrification and decarbonisation. And it is primarily going to be fueled by lithium in its use of battery storage. It should unlock renewables. It should allow us to decarbonise our transport hyperlink. So it is key to the way forward for mankind, I believe.
If any materials is a candidate to be the oil of the twenty first and twenty second century, it is lithium. Lithium is overwhelmingly dominant in that electrochemical area. And that electrochemical storage area goes to be one of many cornerstones of the worldwide industrial and technological panorama for the subsequent 100 years.
The transition to cleaner types of vitality is forcing companies and buyers to rethink their work from first ideas. And that’s presenting an opportunity to construct a brand new financial mannequin that isn’t solely decrease in carbon emissions however actually higher and fairer for communities and ecosystems all around the world. The booming lithium business is on the centre of that battle.
Firms, buyers, and governments on this area have a number of the most enjoyable alternatives within the twenty first century financial system. However these alternatives include intense scrutiny, heavy duty, and a few intimidating challenges. This was the third movie in a three-part collection. Please make certain to love, remark, and subscribe for future FT movies.