Lithium

Diplomado Economa de Minerales

kpclak

Universidad de Chile, Diplomado de Economa de Minerales

Integrantes: Kevin Clarke
Walter Michea
Cherezade Saud Soto
Manuel Zeballos
Fecha de entrega: 18 de Marzo de 2016

ndice
Contenidos
ndice.................................................................................................................. 2
Contenidos..................................................................................................... 2
1. Introduccin.................................................................................................. 3
1.1 Market........................................................................................................ 3
1.2 Lithium Resources...................................................................................... 3
1.3 Uses........................................................................................................... 4
2. Porter 5 forces analysis................................................................................... 5
2.1 Intensity of competitive rivalry..................................................................5
2.2 Bargaining power of suppliers....................................................................6
2.3 Bargaining power of customers (buyers)...................................................6
2.4 Threat of substitute products.....................................................................8
2.5 Threat of new entrants.............................................................................. 8
3. Conclusions................................................................................................. 11
4. Bibliography................................................................................................ 12

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1. Introduccin
1.1 Market
Lithium is a soft metal, the lightest in the periodic table, with a silvery white
appearance that reacts immediately with water and air. Lithium also has the
highest electrochemical potential of all metals. These properties provide very
high energy and power densities for long useful life in small and comparatively
lightweight packages that is driving growth in demand.
Lithium does not occur as a pure element in nature but is contained within
mineral deposits or salts including brine lakes and sea water. The contained
concentration of lithium is generally low and there are only a limited number of
resources where lithium can be economically extracted.
In 2012, the volume of world lithium market was estimated at MUS$ 2,200. The
forecast is that a dynamic future demand and supply due to the current trend
of development of lithium batteries and electric vehicles, which would lead to
increased use and demand.
In this context, Chile has a privileged position on the supply side because it has
22% of the worldwide resources, corresponding to 8.04Mt, and is one of the
leading producers of lithium compounds. While so, in the national economy
plays a minor role, covering exports of MUS $ 305 FOB, which represents only
0.4% of total domestic shipments and 0.6% of total mining exports.
Currently Chile has the second biggest lithium production after Australia.
Remote geographical location consuming countries to lithium products makes
participation in a highly globalized and market specific products more difficult.

Figure 1: Lithium worldwide distribution

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1.2 Lithium Resources

Lithium-containing products are currently derived from two resource types with
varying degrees of contained concentrations of lithium salts from:

Hard rock mines, mainly in Australia, that produce mineral concentrates

for technical mineral-based uses and conversion to lithium chemicals
almost exclusively in China, and
Continental brines, e.g. the salars mainly in Argentina, Chile, and USA for
lithium carbonate, hydroxide and chloride production.

These are the primary brines and minerals based feedstocks for derivative
lithium chemicals, as well as much smaller volumes of lithium metal and alloy.
Generally, but not exclusively, lithium-hosted continental brines are regarded
as being less expensive to exploit and therefore more commercially viable
compared to lithium minerals although all are in remote locations and between
them present very different technical and logistical challenges, and continue to
underperform expectations. The other important aspect to consider when
looking at the brine source method versus hard rock brines is the quality grade
of the lithium carbonate. It is imperative for lithium to be battery grade. Due
to the variance in grades of lithium carbonate producers have strict approval
and testing processes to ensure quality of supply.

Figure 2: distribution of resources by country. Source: Cochilco

1.3 Uses
Glass and ceramics are still the largest end use markets for lithium
minerals and chemicals whilst consumption of lithium chemicals in small
batteries increased substantially from 2000 to overtake use in lubricating
greases and aluminium refining.
The small battery market (calculators, computers, cameras, communications
devices, etc) is forecast to maintain high growth levels (10% pa) whilst the
emerging large battery market for electric bicycles, hybrid and all electric
vehicles is expected to grow substantially (up to 28% pa) to 2020.

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Grid electricity storage is an emerging market for large lithium batteries

and applications in solar and nuclear energy are forecast to emerge before
2015 (Byron Capital 2011). Lithium salts are intensively used as working fluid
in utility sized concentrated solar power plants.
Aerospace and defence are also markets to keep watch of in terms of the
future growth of lithium; alloys are 10% lighter than composite-intensive
planes, 30% less expensive to build and operate as well as the ability to
have larger windows; additionally allowing for a 12% increase in fuel
efficiency, higher humidity and higher cabin pressure. These features rank
highly in the demand for lithium in shuttle production, particularly from
NASAs viewpoint.

2. Porter 5 forces analysis

2.1 Intensity of competitive rivalry
Level of intensity of competitive rivalry: Low
According Pavlovic (2014) and Vera (2012) the lithium industry is highly
concentrated and there are only four companies that share the 79 percent of
the market (CR4) and HHI index is about 1842, the Error: Reference source not
found, Error: Reference source not foundillustrates the distribution by company
in the lithium production. According Vera (2012) the competitive rivalry in this
market is low because in the current scenario, the companies define the price
according the strategic decisions of their competitors.

Figure 3: Lithium production by country

Figure
4:
industry

Lithium

production

by

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Produccin de Carbonato de litio

Chile

5%
11%

China-conversin China-salmuera
13%
3%

Argentina

Produccin Hidrxido de litio

EE.UU.
33%

2% 1%

11%

49%

16%

Brazil

Figure 5: Produccin de carbonato de

litio, 2013. Fuente: COCHILCO

32%

25%
EEUU

Chile

China

Belgica

Rusia

Otros

Figure 6: Produccin de hidrxido de

litio, 2013, fuente: COCHILCO.

2.2 Bargaining power of suppliers

Level of bargaining power of suppliers: Low
To understand the bargaining power of suppliers, first it means the production
process of SQM.
The lithium carbonate production originates from lithium chloride solutions
obtained in the Salar de Atacama as a by-product of the production of
potassium chloride. These solutions are subsequently processed to produce
lithium carbonate in a plant located in the Salar del Carmen, near Antofagasta.
Unused brines are reinfused to the salar.
In the Salar de Atacama are the biggest and best global reserves of lithium
from brines. These are found in the nucleus of the Salar de Atacama, a saline
body in which there are deposits of brines generated by water leaks coming
from the basement of the Andes. The Salar de Atacama brines have important
sustainable competitive advantages globally, introducing the highest
concentrations of potassium, lithium and boron than other natural brine
deposits.
Production costs: The operations in the Salar de Atacama currently have
production costs lower lithium in the world, and are favored by:
Co-production of potassium reduces production costs of lithium. The
geographic location of the deposits in arid climate and high solar
radiation favors solar evaporation as a method of operating cost.

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Production costs to be low and production does not involve highly

specialized processes, supplier power is low.

The production process of SQM doesnt need specific suppliers because the
process is quite simple
2.3 Bargaining power of customers (buyers)
Level of bargaining power of customers: Mid
According to the Figure 7, the lithium is used in several industries but the
current main industry and the industry with more projected growth are
rechargeable batteries, according energy.sourceguides.com (2015) there exist
260 companies that produce lithium-ion batteries and there are established
mainly in Asia, especially China. In the Figure 8 which describes the main
producers of Small Lithium batteries we can see that there are three
corporations Samsung, Panasonic and Lg that have more than 54 percent of
the production of these kind of batteries and are integrated to the final product
and other work of Shyang and Turkay for Ford Scholars shown that in a vertical
integration between electrical cars and lithium ion battery producers in a scale
from 0 to 3 shown most companies has an integration value of 2 (Figure 9).

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Figure 7: Estimated demand of lithium

Figure 8: Small sized lithium ion

battery makers

Figure 9: market share integration

between electric and lithium battery
producers

With this information on mind there is a medium risk that the big companies
continue its vertical integration process and started to invest in joint ventures
in lithium salars or mines or continue growing its market share and turn the
market in a oligopsony

Demanda (2014)

Carbonato de litio

Hidrxido de litio

Concentrado de litio 3% Litio metalico

5%

5%
6%
Butillitio
18%
Otros

45%

Cloruro de litio

18%

Figure 10: Demand of lithium. Type of

lithium

Figure 11: Destiny of lithium. Sourse:

COCHILCO

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2.4 Threat of substitute products

Level of bargaining power of customers: Low
According USGS (2015) the potential Substitution for lithium compounds is
possible in batteries, ceramics, greases, and manufactured glass. Examples are
calcium and aluminum soaps as substitutes for stearates in greases; calcium,
magnesium, mercury, and zinc as anode material in primary batteries; and
sodic and potasic fluxes in ceramics and glass manufacture. Lithium carbonate
is not considered to be an essential ingredient in aluminum potlines.
Substitutes for aluminumlithium alloys in structural materials are composite
materials consisting of boron, glass, or polymer fibers in resins.
According the possibility of substitution in lithium in its main use the batteries,
the expert in lithium Joe Lowry (Epsteinresearch.com 2015) said: Lithium will
remain dominant in consumer electronics and transportation for the
foreseeable future. Grid storage is still playing out lithium certainly has a
place but there are competing technologies in that area. I see no short or
medium-term risk to lithium. Battery/Energy technologies take a long time to
develop and be adopted. Leaders are difficult to unseat.
2.5 Threat of new entrants
Chiles geological potencial:
The amount of mineral resources in the salars of northern Chile make an
attractive country for the extraction of lithium. The brines in Atacama salars
has a very good lithium quality due to its high concentration. Also high
potassium, boron and low magnesium contents, favor the treatment process
and extraction of lithium.
The neighboring countries lithium reserves (Argentina and Bolivia) decreases
the importance of Chile worldwide.
Investment climate:
The current legislation protects foreign investment and facilitates project
development. Because trade agreements with the major world economies,
lithium products not deal with tariff barriers in this markets. The country
policies, protect the investor, so makes entry barriers fall.
Growth production restrictions
The lithium production is limited in quantity and time (SQM and SCL),
restricting the growth production possibilities in Chile and long-run prospects
for the companies involved. In Figure 12, its possible to observe the ownership

of mineral resources of the various countries, policy, taxes and royalties

applied.

Figure 12: property type ore

To enter in the Chilean lithium market, you have to pass many obstacles, such
as: special exploit lithium contracts. However, the income tax is much lower
than in other countries, so it becomes more attractive to enter the market.
Few areas where lithium extraction is possible are low in Chile. While
the market Lithium is a business importance to Argentina and Chile,
and could be for Bolivia, movements that could make the major
companies already established and other barriers to entry, are a risk
important for the entry of new market participants. These entry
barriers, especially those who pose a high barrier as market size,
economies of scale, excess capacity, uncertainty of growth of demand
and supply and the possibility of expanding existing projects
(constituting a very high barrier).
In the case of lithium, the market share of the 4 largest companies
stood at an average of 86% for the decade 2000 - 2009. For this
reason and for the potential they have to handle one of the barriers to
entry, the increasing capacity of its plants, the entry of new
companies is risky.

3. Conclusions

Talking about lithium producers, and specifically, the Chilean company SQM, we
can say that this company is not a price taker, then, the decisions that it make
can have influence in the prices and market. By company, the world lithium
supply is dominated by four biggest producers, with a market share of over
80%. Chinese manufactures supply a combined 18%. The list prices for lithium
raw materials are published by the major producers and prices are
negotiated directly with buyers so there is no terminal market and virtually
no third party spot market.
The Market is currently driven by consumer products that require battery
grade lithium. Only a limited number of producers can supply the high end
grade lithium; as a Seymour Pierce research noted, SQM, FMC, and Chemetall,
the largest suppliers of lithium carbonate do not at present have the
capability to supply 99.99% Li2CO3 to the market.
Another leadership for SQM, is its differentiation in cost due to the best grades
in the world in the salars, the issue that is a byproduct in its production and an
advantage that they have is the processing technologies that are in use
actually. A competitive advantage that SQM can do is to program its production
in function on Lithium. A consideration to have about SQM production is to
have the governments permits for Lithium exploitation, and the issue that
Lithium is not a concession in Chile.
In each Porters forces, we dont see great threats either in Short Run or in
Long run. The option of new discoveries could be look as a threat in long term,
but as we said, the participation in the market of lithium by SQM is big enough
to ensure the participation. In addition to the companies currently supplying
the market, there are producers on the horizon moving forward with
exploration activities, most probably to be taken over by the dominant four
players.
These are the primary brines and minerals based feedstocks for derivative
lithium chemicals, as well as much smaller volumes of lithium metal and alloy.
Generally, but not exclusively, lithium-hosted continental brines are regarded
as being less expensive to exploit and therefore more commercially viable
compared to lithium minerals although all are in remote locations and between
them present very different technical and logistical challenges, and continue to
underperform expectations. The other important aspect to consider when
looking at the brine source method versus hard rock brines is the quality grade
of the lithium carbonate. It is imperative for lithium to be battery grade and
leave behind the unwanted contaminants that the deposits may contain from
brine sources. Due to the variance in grades of lithium carbonate producers
have strict approval and testing processes to ensure quality of supply.

4. Bibliography
[1] Importancia estratgica del mercado G. Vera. Gem Consulting 2012.
[2] Industria del litio en Chile. P. Pablovic 2014.
[3] Mineral Commodity Summaries USGS. 2015
[4] Interview of Mr Lithium. Epstein Research.com 2015