Top Lithium Miner Sees Inflation as Speed Bump in Supply Growth

(Bloomberg) — Higher labor and supply costs will slow but not stop expansion in lithium mining, according to the chief of the world’s largest producer of the key ingredient in rechargeable batteries.

Labor tightness in Western Australia has caused a three-month delay at Albemarle Corp.’s Kemerton II expansion. The miner has to pay rates that more than double the level before the pandemic to retain workers there, while dealing with higher electricity prices in North America and Europe. Freight rates have also increased 30% to 40% globally.

Producers are starting to ramp up amid signs the market is recovering from a glut, with the lithium supply tightening and prices surging. Global demand is projected to rise as much as five fold as a shift to low-carbon energy sources fuels sales of electric vehicles. Meanwhile, Covid-triggered shortages in materials have driven up costs across industries, with U.S. inflation exceeding forecasts in the last four months.

“I don’t think they really stop capacity,” Kent Masters, Albemarle’s chief executive officer, said in an interview Thursday. “In the near term, they slow it down, especially if you plan to build plants in Western Australia.” Higher cost of shipping and power also won’t affect capacity, he added.

Masters expects the “extraordinary cost pressure” in labor, energy and freight to come back down after supply-chain issues are solved, possibly “in a year’s time post Covid.”

A global index of lithium prices has jumped more than 80% this year, rebounding from a decline that had started in mid-2018.

BloombergNEF expects the supply of lithium hydroxide, or battery-grade lithium, to be tight this year and prices to rise along with battery consumption. It also expects lithium demand to grow five-fold by 2030 from this year’s levels.

For Albemarle, Western Australia is a unique market where capital-intensive projects have been difficult to process. With Covid-related lockdowns, workers there are in even higher demand as mining companies can’t transfer people from other regions and they will have to offer higher wages to attract more workers.

“We’re fighting to keep the resources we have,” Masters said about retaining the workforce in the Australian state. “And we have to pay significant rates to keep those resources. That’s why the delay at Kemerton II.”

Shares of the Charlotte, North Carolina-based company rose 1.3% to $221.545 at 9:36 a.m. in New York trading.

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By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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