Mine supply is likely to remain the predominant source of lithium for many years to come, with battery recycling only expected to become a viable alternative supply source beyond 2030, Fitch Solutions Country Risk & Industry Research reports.

In a new report, the agency states that the growth of the battery recycling industry will remain constrained by cost and policy challenges.

“At present, it is hard to create a standardised recycling process that would increase cost-efficiency, thus making it difficult for recycling companies to make profits. The most cost-effective battery recycling method used currently is pyrometallurgy; however, it is energy-intensive and has poor lithium recovery.

“Within this context, more technological advances will need to transpire within the next decade to make recycling a sustainable source of battery-grade lithium,” it notes.

Fitch Solutions adds that public-private initiatives will also be needed to increase reliable and publicly available data on lithium ion (Li-ion) batteries, while government-funded research and policy incentives will be needed to bolster battery collection.

“We expect investment to continue to flow into recycling research and development ahead of the anticipated surge in spent batteries from electric vehicles (EVs).

“The number of spent Li-ion batteries from EVs will achieve significant growth in the coming decades, as the number of EV sales accelerates in the short term. This is due to the average ten-year life cycle of most EV battery models,” the agency points out.

Meanwhile, Fitch Solutions notes that most new lithium projects are located in Canada, Argentina, the US, Australia, Brazil, China and Germany, while most of the new projects are owned by companies domiciled in Australia, Canada and China.

It further notes that most new lithium projects are estimated to produce between 20 000 t and 40 000 t of lithium carbonate equivalent at full capacity, with Australia possessing hard-rock lithium mines with the largest reserve base.

Fitch Solutions points out that access to lithium supply is characterised by a number of challenges, including the relative geographic concentration and a myriad of key political and sustainability risks.

On the supply front, the lithium market is geographically concentrated from a production and ownership perspective.

Moreover, challenging lithium extraction sustainability credentials will result in a race by battery and EV manufacturers and even governments to access the most sustainable raw material, says Fitch Solutions.

It states that the entire EV battery value chain manufacturing landscape, from lithium extraction to battery manufacturing and EV manufacturing, will change significantly in the coming years, as developed markets aim to reduce their dependency on China.

Fitch Solutions also expects lithium hydroxide demand to surpass lithium carbonate demand in the future.

The agency has a favourable lithium price outlook, but says that, given the complexity in environmental standards, the sustainability of new lithium supply will be just as important as the scale, further limiting “oversupply” risks.

Fitch Solutions further says hydrogen fuel cell vehicles are unlikely to pose a significant threat to lithium demand over the next decade.