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Lithium – powering the future

9 months ago

Niall Sexton, Investment Manager

Niall Sexton,

Investment Manager, Architas

Lithium – powering the future

From smartphones to electric vehicles (EVs), electricity storage batteries are central to powering the modern age. More specifically, the development of lithium-ion batteries has been pivotal in enabling the wider uptake of these transformational products. We take a closer look at lithium, the crucial element for the power packs of the 21st century.
The basics

Lithium has the atomic number 3. It is the least dense metal and the least dense solid element. As with all the alkali metals it is highly reactive and must be stored in a vacuum or an inert liquid such as mineral oil. Lithium has a high power-to-weight ratio, due to its low atomic mass. A typical lithium-ion battery can generate 50% more power than a lead acid equivalent.

Electrifying growth

Lithium has historically been used in medicine as a mood stabiliser, as well as in early research into nuclear reaction, when lithium atoms were transmuted to helium. It has numerous industrial applications, including the production of heat resistant glass for cooking hobs. But by 2007, the development of rechargeable lithium-ion batteries had become the dominant source of demand. And by 2021 batteries accounted for 74% of lithium use, jumping from only 10% a decade earlier. Lithium production quadrupled over the same timeframe.

Price swings

As with other key battery metals such as cobalt and nickel, the price of lithium has seen significant volatility over recent years. As forecasts of soaring demand met bottlenecks in supply, prices were forced up. Lithium touched a record high of almost $83,000 per tonne in late 2022, before falling below $23,000 per tonne recently. What triggered the falls? Lithium tumbled as EV sales in China cooled earlier this year, even as supply surged. But given that an EV’s battery accounts for around a third of its retail price, lower input costs could now help to stimulate EV demand.

Mottled green credentials

The world is forecast to become increasingly dependent on electricity storage batteries, once renewable energy infrastructure has been fully rolled out. Lithium could be at the centre of this transformation. On the supply side however, current extraction techniques are considered environmentally damaging, challenging the concept of a ‘green car’. Battery recycling is possible, extracting not only lithium but also cobalt and nickel, but the process is tricky and not yet widely practised.

Architas view

Our view

At Architas we do not invest directly in commodity markets, but we are able to gain some exposure to developments in the lithium market via investment in more specialist funds, or even in funds with exposure to downstream technology, such as battery production. As ever, we would look to broaden our exposure, in order to lower the risks associated with any particular asset class.

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