Is the lithium party winding up or heating up?

In December’s Pilbara Minerals BMX auction, the spodumene price for two cargoes eased slightly from a record high in November, reflecting inevitable short-term uncertainty in the Chinese economy.

This essentially was due to covid, but while fluctuation was around an all-time high, as should be expected, there is still no consensus on the medium and long-term price outlook.

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Some analysts believe the lithium market will enter a period of surplus during the middle of this decade.

This assumes a lot of optimistic estimates going right: the quality of lithium from new production sites will have to win approval against exacting technical standards, and many hurdles, not least permitting issues, will need to be overcome before all the expected new volume can come on stream effectively.

Not least, starting production from a new mine is not as easy as plugging in the EV it will ultimately power.

Further in the future, a major supply deficit is still expected to dominate the industry, as demand for lithium batteries is driven to grow by governments pledging decarbonisation but without the mines to supply it.

Analysts often approach this question by resorting to old paradigms, tried and tested in global commodity products.

The trouble is lithium is a speciality, not a commodity. Lithium is a highly technical product with non-transparent pricing, sold mainly under confidential agreements and in far smaller volumes than real commodities such as iron ore.

The recent decision by Canada’s government to order Chinese backers to divest from three lithium investments highlights a strong trend towards regionalisation of the lithium market in the interests of supply security.

Authorities realise they can no longer entrust the supply of critical minerals to politically unreliable states and have reacted by incentivising domestic production or at least developing sources in friendly adjacent nations.

The new Inflation Reduction Act (IRA) in the USA is designed with this in mind, heavily encouraging investment in North America and Canada.

Balkan Minerals and Mining trenching pegmatite dykes at Gorge Lake Lithium Project in Canada’s emerging Ontario Province

This month Canada followed suit with new measures to make matters such as mine permitting quicker and easier.

Australia leads the way with new lithium mine developments, and Canada certainly has a lot of catching up to do.

But it is clear that Canada is seen internationally as a prime jurisdiction for new miners and investors, mainly to supply the potentially huge North American market. The first projects there are beginning to reach the stage of pre-feasibility studies.

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