Critical to the global transition to zero-carbon renewable energy are the critical minerals required to build the required infrastructure. Lithium is the metal that gets the most exposure due to its necessity for current battery technology. Australia is the largest producer of the raw lithium mineral but has a negligible impact on the refinement process which is dominated by China. ABSI this week looks at Australia's plans to move up the supply curve in lithium.
Lithium is a soft, silver-white, highly reactive metal that belongs to the alkali metal group and is the lightest metal. Lithium is a highly reactive element that can quickly react with water or air giving it versatility across many industrial applications, including in the production of ceramics, glass, lubricants, and batteries.
It is important to appreciate the range of methods for extracting lithium from the ground, including:
Australia is the largest producer of lithium in the world, accounting for over half of the world’s production in 2021, however virtually all it is exported to China in its raw form for refinement to battery grade hydroxides. In 2022, the average spodumene price was US$2,730/t but lithium hydroxide averaged US$39,900/t and the Australian government forecasts this to increase in 2023 to US$61,200.
Source: Mining.com
Leaving this much value on the table is why the Australian government and business are making a push into lithium refinement in Australia. Through the support of the A$1.3b Modern Manufacturing Initiative (MMI), refineries are being planned by Wesfarmers (ASX:WES), Mineral Resources (ASX:MIN), and Liontown Resources (ASX:LTR). Australia’s first refinery, Kwinana - a JV between Tianqi and IGO (ASX:IGO), commissioned first production in May 2022 and is ramping up capacity to 24 tpa. If all plans progress on time, it is forecasted that Australia will capture 10% of the market by 2024, and 20% by 2027.
A boost to these refinement plans is the USA’s Inflation Reduction Act (IRA) which grants tax credits on EVs where 50% of material have been produced in the US or one of its free trade partners. Japan and South Korea, both large battery producers, have also earmarked Australia for further investment to lock in critical supply.
All this investment is catapulting lithium up the Australian export ladder, putting it on track to surpass beef and wheat as the country’s fifth biggest export. It is forecasted that total exports will reach A$13.8b in FY23, a 10x increase but still pales in comparison to Australia’s biggest export, iron ore. And therein lies the holy grail for Australia, harnessing modern green manufacturing practices for the smelting of steel rather than exporting iron ore.
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