While lithium ion batteries have been noted to disrupt the energy industry in near future, some turbulence has been witnessed by the lithium sector with many economists and experts undervaluing the emerging flock of lithium players. On the other side, there is an expectation that some miners may be able to transform early stage lithium projects into prospective long-term business and benefit from the battery boom. Smartphone, tablets and electric vehicle have already boosted the demand for lithium by ~18% since 2010. Batteries now account for about 37% of total lithium consumption. However, the other market including construction and manufacturing witness slower growth due to the global economy slowdown and slowing Chinese demand.
 
Market structure:As per the Macquarie report, market structure of lithium is of oligopoly and four producers control about 85% of the supply. Chile’s SQM and US companies FMC Corp and Albemarle Corp dominates the production landscape, extracting lithium from salt lakes in Chile and Argentina. Albemarle also operates in Nevada. Fourth producer is Australia’s Talison, which produces lithium at the Greenbushes mine in Western Australia.
 
Price mechanism:The prices are so strong because the oligopoly is running well below capacity.  These companies are running below their capacities to hold the supply and thereby hold the prices. However, the scene is going to change as existing producers would be forced to lift the supply to maintain their market share and also to keep new entrants out. Accordingly, lithium prices have been expected to peak in 2017 and then likely start heading lower. Lithium carbonate prices rose 47% in the first quarter of the year as compared with the average price in 2015, according to data provider Benchmark Mineral Intelligence. In the era of increase in number of users of smartphone as well as electric vehicles, the demand for lithium based batteries is going to be on an up move, impacting the prices accordingly.
 

 Lithium contract prices rally (Source: Financial Times, Benchmark Mineral Intelligence)
 

Demand seen to outstrip supply: Considering the rising demand for lithium batteries, many companies have started focusing on extraction of lithium while battery manufacturers are on the verge of setting up gigafactories. As per Namaska Lithium reports many big companies are coming up with gigafactories after which the production is expected to triple by the year 2020 – which in turn is going to require a ton more lithium supply. The examples entail LG Chem (capacity 7 GWh), Tesla (capacity 35 GWh), Foxconn (capacity 15 GWh), BYD (capacity 20 GWh) and Boston Power (10 GWh). Tesla aims to achieve a target of building 500,000 cars by 2018 from an estimated 80,000 cars in 2016. With these factories coming to stream, the production of lithium-ion batteries is expected to triple by 2020. However, for these total 87 GWh capacity, about 70,000 tonnes to 100,000 tonnes of lithium is required by 2021, and this supply does not exist as of now. The current situation is that the demand is more than the supply and the situation is likely to remain the same for next two years till the new production is coming up in economy.
 
 

Application based Lithium Demand (Source: Albemarle)

Sector attracting significant investments: Lithium at the lower end of demand forecasts, calls for significant investment in production to meet future needs. The very large reserves of resource are available. However, the same can be extracted, if consumers are willing to pay the high cost of extracting lithium from seawater. This is an indicative of the physical challenges related with extracting metals from geological sources with ever-decreasing metal concentrations and also the ever-increasing costs associated with recovering these metals. Rio Tinto spent $70 million in Jadar deposit and requires another $20 million to conduct studies to examine Jadar deposits. If mined, it is projected that it would be around 20% of total global supply of lithium.Today lithium prices are on upsurge but this trend could be under pressure in the coming months.
 
Outlook: As prices rise, more and more explorers are venturing into production and extraction of lithium and lithium-ion batteries. As a result, the stocks like Prospect Resources Ltd (ASX: PSC) surged over 1058% during this year to date (as of September 29, 2016). Australia has been said to hold roughly 1.5 million MT of lithium reserves, and majority of its production is exported to China. Considering the uptick in demand and prices junior mining companies like Pilbara Minerals (ASX: PLS) and Galaxy Resources (ASX: GXY) are investing in lithium projects creating further supply.
 
On the other side, given the rising demand, more capacities are coming up in the stream leading into supply generation, which would have obvious impact on prices.  Lithium market dynamics as of now thus seem to witness some ups and down. For instance, the latest move by Tianqi on purchase of SQM stock has boosted many lithium companies. Things are thus expected to become more clear with time.