The lithium industry is currently experiencing an intriguing confluence of factors that have caught the attention of market observers.
Key developments in China’s spot pricing, Chile’s strategic project policy, and the growing size of the lithium industry are all shaping the landscape. As a result, diversified mining companies are increasingly considering acquisitions in the lithium space.
One significant factor driving the current state of the lithium industry is the recent trend in spot pricing in China.
After a period of decline, lithium spot prices have finally started to increase on a week-over-week basis. This turnaround marks a noteworthy shift since December of the previous year.
The stabilisation of negative rate changes indicates a potential shift in the supply-demand balance and hints at increased market confidence.
Chile, responsible for approximately 33 per cent of the world’s lithium production last year, has implemented policies to increase state ownership of strategic projects.
This move aims to assert control over key lithium resources and ensure their responsible and sustainable development. Given Chile’s significant role in the global lithium market, this development holds profound implications for the industry’s future.
Another compelling aspect of the lithium industry’s current state is its increasing size, which has garnered the attention of diversified mining companies.
The growth of lithium businesses now justifies acquisitions by these miners.
For instance, Albemarle, a prominent player in the lithium sector, generated over $3 billion in EBITDA last year. Similarly, Rio’s base metal unit and Valleys base metal unit also generated substantial earnings. The financial scale of these lithium-focused businesses makes them attractive prospects for acquisition.
Lithium producers like ALB and SQM are strategically acquiring assets to align with the expanding EV supply chain. This approach allows them to capitalise on initiatives such as Biden’s Infrastructure Bill, which supports EV infrastructure development. Diversified mining companies are also considering lithium acquisitions to diversify portfolios and capitalise on the EV revolution.
The surge in M&A activity extends beyond the lithium industry. Various commodities vital to the energy transition, such as copper, nickel, graphite, and platinum, are also witnessing increased interest.
Companies, armed with substantial cash reserves, are eager to secure assets and diversify their holdings. The urgency surrounding these metals aligns with the accelerating demand for battery production, primarily driven by the rise of electric vehicles.
A critical factor impacting the lithium industry and other commodities is the drive for domestication and vertical integration of supply chains.
China’s dominance in EV processing and supply chains necessitates most lithium to pass through the country before reaching EV manufacturers worldwide, including the United States. To mitigate supply chain risks and secure a stable lithium supply, original equipment manufacturers (OEMs) are seeking partnerships and even acquisitions of upstream mining assets.
As the lithium industry continues to evolve, the trend of OEMs acquiring upstream assets to secure their supply is likely to intensify.
This progression echoes historical patterns, such as the rubber plantation acquisitions in Brazil a century ago. Recent rumours of Tesla’s interest in acquiring Sigma Resources, along with their lithium refinery project in Texas, further illustrate this growing trend.
The current landscape of the lithium industry is witnessing a convergence of factors that are reshaping its dynamics. M&A activity is poised to play a pivotal role in shaping the future of the lithium industry.
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