SQM issues caution over electric vehicles

In little under two decades, SQM SA has gone from entering the lithium market to dominating global production.

After commercialising a new lithium extraction method from sub-surface brines in the Atacama Desert, SQM not only become the world’s largest supplier, but also one of Chile’s most important and strategic mining companies.

Through its production of lithium, potash, iodine and nitrates in the country’s north, SQM enjoyed a renaissance in demand in the mid-2000s for many of these minerals, and the higher prices that came with it.

But it was lithium’s rise to dominance in smartphones powered by lithium-ion batteries that saw SQM thrust into the global spotlight as one of very few suppliers of the strategic raw material.

“The demand for lithium in energy storage had indeed been a spectacular development between 2004 and 2009,” Patricio de Solminihac, chief operating officer of SQM explained in an exclusive interview with Benchmark Mineral Intelligence.

“The boom of mobile phones, laptop computers and other portable devices [saw lithium demand surge], and during the [last five years], the successful introduction of smartphones and tablets has further boosted lithium demand.”

It was in 2004 where the lithium industry started to see a supply squeeze translate into higher prices, particularly for lithium carbonate, the precursor material used in battery cathodes. The increased demand from the new market caused friction with traditional markets such as ceramics and glass that were competing for the same raw material – this led to price volatility.

Shipments of lithium-ion batteries rose from 650m in 2003 to over 3,000m in 2009. While lithium producers were expecting this trend, the speed of growth very much caught the industry by surprise creating a shortage in supply.

Since then, the major suppliers have caught up to meet the continually increasing battery demand which stood at 4,500m cells in 2014, however the supply situation still remains tight leaving a window of opportunity for new entrants, specifically Orocobre in Argentina.

The lithium industry is now preparing for the next phase of development for lithium-ion batteries with electric vehicles (EVs) looking increasingly promising to the outsider.

Significant new supply of batteries is schedule for 2017 onwards with Tesla Motors, LG Chem and Foxconn Technology Group all planning lithium-ion megafactories. This is in addition to new plants and expansions by battery majors such as Samsung SDI.

The influx of new players and new production has changed the EV outlook for many from a conservative case to a bullish story as lower cost cells could translate to cheaper vehicles and increased uptake.

“We see the development of EVs with much more caution,” explained de Solminihac.

“There are important variables that will affect its development, positively or negatively. These are: infrastructure availability, range, battery costs and government policies, all of which have difficult challenges to overcome.”

“But there is another variable that may have an even stronger negative impact on the development EVs: the oil price.”

How will the oil price impact EVs?

What’s in store for pricing of lithium hydroxide and lithium carbonate?

How quickly can SQM expand to meet new demand?

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