Investors smell the money, billions are flowing, even in the US, which could become major lithium producer.
By Wolf Richter for WOLF STREET.
Who needs fundamentals when you have rampant speculation? And then you can make up a story that fits the speculative narrative, and everyone will jump in, and you’re off to the races. That’s what commodities are all about from time to time. They’re so much fun.
The spot price of battery-grade lithium carbonate, trading in Shanghai and serving as a benchmark, dropped today to CNY 133,500 per tonne, down 77% from the peak a year ago, and below where it had been in 2017.
It had spiked by 1,410% from CNY 39,500 per tonne in August 2020 to CNY 600,000 in November 2022, multiplying by 15 in about 27 months, WHOOSH. The narrative to support the speculative craze was, you guessed it, lithium shortage. But high prices brought lots of new production online. The best cure for high prices is high prices. And soon the new and improved narrative was that there was a lithium glut. And today roughly completes the first full year of a most spectacular collapse in prices.
We already had a lithium bubble followed by an implosion a few years ago: The prior lithium bubble peaked in 2017, at CNY 175,000, and imploded over the next three years, with the price dropping 77% to CNY 39,500 by August 2020.
Inevitably, when you have so much fun, something even more fun happens: A startup company, Stardust Power, announced on November 21 that it would go public – and you also guessed this – via merger with a SPAC. With the money it expects to raise in the SPAC merger, it will build its first lithium refinery. It already picked out a “shovel-ready” location near Tulsa, OK, to build the lithium refinery and then to supply the EV battery industry.
This Stardust Power announcement comes after the stocks of EV SPACs and a bunch of other companies that had gone public via merger with a SPAC have totally collapsed and entered my pantheon of Imploded Stocks. So good luck.
Obviously, there is a lot of demand for battery-grade lithium to go into the batteries for the global EV production boom, and thankfully, lithium is abundant around the world and in the US.
In September, we were treated to this headline: “Lithium deposit found in US may be among world’s largest, study finds.” The area is in Nevada. But in the US, permitting issues, local opposition, legal challenges, and costs don’t exactly make starting up lithium production a cakewalk.
Then there is the long-running Lithium Nevada’s $2.3 billion project, which, after overcoming a host of issues, including legal challenges from tribes, is now on schedule to begin production in late 2026 at what could be one of the largest lithium mines in the world.
The big kahuna of the oil-and-gas industry, Exxon Mobil, announced earlier in November that it plans to produce lithium from briny water pumped up from about 10,000 feet in the Smackover Formation in Arkansas. Production is expected to start by 2027 and will eventually supply lithium for well over 1 million EVs per year, according to Reuters. It cited analysts at TD Cowen that estimated this would require Exxon Mobil to invest $2 billion. So that’s going to be good for the economy.
Lithium production at the Salton Sea in California has been kicked around for years. The area has been dubbed Lithium Valley due to its lithium-rich geothermal activity. Three companies are now working on projects using a new technology of extraction that is still largely unproven at scale. Two of the three – BHE Renewables and EnergySource Minerals – own and operate geothermal powerplants in the area, and that’s a pretty good fit. So we’ll see.
All kinds of lithium production projects are being worked on in the US and around the world. Currently, Australia, Chile, and China dominate lithium production. Australia alone accounts for nearly half the global production. The three combined account for about 90% of global production. Everyone is now trying to get in on it. Investors have smelled the money, and the billions are flowing.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.