The global demand for lithium metal batteries is on the rise, but production is struggling to keep pace, stalling industry growth. Benchmark’s Solid-State and Lithium Metal Forecast highlights the sector’s challenge in sourcing sufficient lithium metal for battery production, despite its immense capacity potential.
In 2024, if all suitable lithium metal produced were allocated to batteries, it could sustain 5 to 10 gigawatt-hours (GWh) of cell production. However, a significant portion of lithium metal is diverted to other industries, leading to a supply shortfall this year. The deficit is projected to escalate from nearly 10 GWh in 2024 to around 60 GWh by 2026.
China currently holds a dominant position in global lithium metal production, accounting for over 90% of capacity in 2023. This dominance is expected to persist, with China setting its sights on doubling its capacity within the next 3 to 5 years. While some companies globally are scaling back production due to improved supply prospects and waning EV demand, Chinese firms like Tianqi Lithium Corp. and Ganfeng Lithium Group Co. are forging ahead.
These leading Chinese companies remain undeterred by recent profit declines, focusing on expanding their market presence and securing global lithium reserves. Despite facing challenges such as plummeting prices and reduced net income in 2023, both Tianqi and Ganfeng are actively seeking to increase production capacity and acquire high-quality lithium sources.
Tianqi is seeking partnerships to explore premium lithium sources, accelerating work at its Yajiang mining project in Sichuan province. Meanwhile, Ganfeng is strategizing to develop cost-effective resources like lithium derived from brine and expand processing facilities in China and Argentina. Other Chinese miners like CMOC Group Ltd. and Zijin Mining Group Co. are also eyeing opportunities in battery materials amid signs of a potential price recovery.
The escalating demand for lithium metal batteries is outpacing supply, with projections indicating a demand exceeding 10 GWh by 2026. As developers transition from cell development to pilot production, the need for lithium metal is intensifying. Next-generation lithium metal batteries require thinner foils for the anode, posing a challenge to traditional production methods.
Efforts to overcome this technical barrier are crucial for industry advancement, with companies exploring innovative approaches to address this challenge. The surge in trading of lithium metal on CME Group Inc. is drawing increased attention from funds, signaling a maturing market for the lithium industry.
The growth in open interest in trading lithium metal follows a robust year in 2023, driven by arbitrage trading between China and the US. China’s introduction of its lithium carbonate contract on the Guangzhou Futures Exchange has further bolstered trading activity, highlighting the growing importance of lithium derivatives markets as tools for managing price risks.
Despite facing challenges such as declining battery metal prices and market dynamics, the surge in open interest offers reassurance to funds and financial participants. It signifies a growing interest in lithium derivatives as a means to navigate the evolving industry landscape and capitalize on opportunities presented by the market.
The increasing liquidity and trading activity in CME’s lithium hydroxide futures contract indicate a rising interest in lithium derivatives as investors seek exposure to the rapidly evolving battery materials sector. With trading volume poised to exceed last year’s record, lithium futures are becoming an attractive investment avenue for those looking to diversify their portfolios and capitalize on commodity market volatility.
