When economies of scale don't work: could OPEC model lead lithium producers to keep prices high?
If there's one repeated refrain we hear about the high price of advanced lithium batteries that are needed for the mass adoption of pure electric cars, it's that economies of scale will one day make the packs reasonably affordable. This seems a likely scenario, but is it inevitable? A paragraph in a recent column by Jerry Flint in Forbes caught my eye. He writes:Given what we know about lithium, does a continued high price seem reasonable to you? Bolivia has about half of the world's estimated lithium reserves, so what happens there will have a tremendous impact on how the global lithium economy sets rates. We've already heard Bolivian president Evo Morales call for a state-dominated lithium industry in order to ensure that the profits benefit the people of his country. This seems fair, up to a point, but following the OPEC way of constantly driving up prices through the years won't make Bolivia a lot of friends.There's the legend that with mass production the cost will go down. Maybe, but that's bunk when it comes to certain materials. Take oil. Production is way up from the old days, and so is the price--I remember $3 a barrel, but now it's around $70 today. Indeed, OPEC might be a model for LIEC, a lithium ion producers' cartel, when they realize how important it is.
[Source: Forbes]
Reader Comments (Page 1 of 2)
Epyx 3:06PM (8/19/2009)
Why do all the unstable countries win the natural resource lottery? I guess Bolivia is not so bad, it could be worse. The country can definitely use the revenue infusion.
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Ernie 3:41PM (8/19/2009)
You mean like America? In terms of fertile soil, rainfall, and vast tracts of land on which to grow things, (oh, and coal, timber, and a boatload of other minerals) America has hit the jackpot. Saudi Arabia, not so much.
Actually, Saudi Arabia is a pretty stable place politically. They're even pretty tolerant of overall American assholery and have even been nice enough to buy vast tracts of American land...
Matt 4:25PM (8/19/2009)
@Ernie
Yeah, because America doesn't feed the rest of the world or anything. Oh, and we do it below cost (or for free, or in some cases at our expense!) a lot of the time. We defend freedom around the world at no cost to the countries under attack, we do our best to have a real democracy, and generally make an effort to share our wealth... but you're right, we're assholes.
Matt 4:31PM (8/19/2009)
Oh, and Epyx:
Aside from his comment that Americans are "assholes" Ernie is right; the most fertile land on earth is right below your feet. The United States has fertility and diversity, oil, food, forests, lakes, rivers, oceans, mountains, plains, etc. We've got it all, you just have to go out and make use of it.
cthormahlen 4:46PM (8/19/2009)
The guy from the NYT is clueless. Petroleum is a complex material that is prohibitively expensive to synthesize in a lab, so the supply is ultimately fixed; OPEC is simply rationing oil production to conserve their resource and maximize short term profits. Lithium is an extremely simple atomic element that is easily synthesized in a lab; Lithium supplies are virtually unlimited. We'll run out of iron before we do lithium. Bolivia is an intolerable basket case and Evo is only digging them deeper holes and burning more bridges; they will be bankrupt before the next decade is out.
Nozferat 5:49PM (8/19/2009)
Epyx,
The people of these countries do not win any lotteries. They live in misery. Having resources that a super power wants is a curse...not a blessing. I wouldn't wish it on my enemy.
Nozferat 5:52PM (8/19/2009)
MATT:
If the US goes around touting "morals" and "freedom" to everyone, you better freaking believe it should be helping everyone...especially when it's busy making back-door deals with all regimes is financing and propping up.
Do you think the US is "handing out and feeding" the world out of the goodness of its little heart?
Spare us the "we defend freedom" crap. It's really really old.
JasonN 6:04PM (8/19/2009)
@Matt
You really are oblivious as to why there is US presence in foreign countries. US foreign policy is not dictated out of the goodness of US hearts, it is dictated out of geo-political control and resource acquisitions. Open your eyes buddy! Oh and by the way, another 56 people were killed in oil-rich Iraq today and another 560 wounded! I believe that Ernie, using the term "US assholery", was putting it mildly.
lne937s 7:00PM (8/19/2009)
@cthormahlen
"The guy from the NYT is clueless"
It was Fobes, not the NY Times. I have a feeling our "elite" newspaper would take that as an insult to be confused with a magazine run by a former Republican Presidential candidate.
Here is the article:
http://www.forbes.com/2009/08/18/electric-cars-detroit-business-autos-backseat-driver.html?feed=rss_news
he is wrong on a number of levels- from the impact of Lithium to the current cost of the batteries
ssautoexpert 7:33PM (8/20/2009)
Just one clarification to cthormahlen:
Lithium is an element. A basic building block. It is like gold. It can not be synthesized.
This is what the whole brouhaha is about.
Sorry about that.
meme 3:08PM (8/19/2009)
Not in the least. Lithium costs are a trivial portion of battery manufacturing costs. The fact that because Bolivia and Chile have the cheapest lithium is irrelevant. The price could increase tenfold and it'd barely affect battery prices. And even at current prices, some of the massive deposits in the US southwest, such as the Kings Valley, are starting to become economical. With a 5x increase in lithium prices, we could economically get it from seawater.
It's simply impossible for lithium prices to impede battery development in the long run. There's this stupid myth that lithium-ion battery prices are closely tied to lithium prices, and it needs to die. Lithium is just one component among many.
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Mike!!ekiM 3:51PM (8/19/2009)
Ouch. If what you're saying is true, this implies that Forbes Sells it's Editorial Content.
meme 3:57PM (8/19/2009)
If people had decided to call them "Cobalt" batteries as the trade name (after the cobalt in the cathode), Forbes would have an editorial heralding an upcoming cobalt scarcity. If people had decided to call them "Graphite" batteries after the graphite anode, Forbes would have an editorial heralding an upcoming graphite scarcity. But since we named them after the lithium ions in them (which move back and forth between the cathode and anode), it's heralding an upcoming lithium scarcity.
roflwaffle 3:17PM (8/19/2009)
Eventually it may happen, but for now the tremendous volume increase offered by the automotive market is too tempting to ruin by price fixing. OPEC, which produces about half of the world's oil, can fix prices because they can cut production more than anyone else can increase production. I don't think we can say the same for Li battery producers. There isn't enough consensus/capacity to cut production enough to offset the increase in production of competitors, and for the industry as a whole that's counterproductive considering how much larger the world traction battery market will probably be. Unless they can charge a hundred times what they currently do, while being able to marginalize competitors, while still selling what they do currently, it would make no economic sense to behave like OPEC.
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paulwesterberg 3:13PM (8/19/2009)
Oil has continued to go up not only because of opec, but because we use so much of it and most of the worlds oil fields are in decline. The light sweet crude oil that was easy to pump and close to the surface has all been pumped. In order to meed demand oil companies employ more costly extraction methods, more costly well locations and expend more energy refining of lower quality oil and tar sands.
The lithium in Bolivia is abundant, easy to get, right on the surface and very little lithium has been extracted. Raw lithium prices very reasonable(compared to battery cells) and besides reserves in Bolivia, Russia and the United states you can extract the it from seawater so any cartel will have a difficult time maintaining a strangle hold on supply.
Comparing lithium to oil is an easy story for reporters who don't know very much.
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Dave R 4:41PM (8/19/2009)
It doesn't help that China and India are adding new gas burning vehicles to the roads at an amazing, rate, either.
The fact that US oil consumption is down considerably and gas is still $3/gallon and oil ~$70/gallon should make everyone worry about what will happen once the US economy starts growing again.
Chris M 3:19PM (8/19/2009)
Correction: Bolivia has half of the worlds richest lithium ores, a large salt flat in the Andes. Lithium is fairly abundant so most nations have low reserves that can be tapped if the price went high enough. The only reason why most Lithium comes from Bolivia is that their lithium ores are particularly concentrated and easy to extract, thus has the lowest cost of production. But if Bolivia tried to raise prices too high, then other lithium sources would be tapped instead, that puts a natural limit on any attempts at price gouging.
It sounds like Morales wants lithium battery production to be set up in Bolivia, which would make more profit for that country even with low lithium prices. But does Bolivia has enough technically trained workers and enough political stability for any lithium battery companies to set up manufacturing there?
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Serge 3:30PM (8/19/2009)
I'm sorry, but drawing parallels between production of oil and lithium is pretty stupid. Lithium is not an energy product!!! A better equivalent is steel or aluminum production.
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Bip-D-Bo 3:44PM (8/19/2009)
Why would it matter if Lithium were used for energy, food, or hygene products? It's irrelevant. The point is that Lithium is a material that will be in high demand. When you have a material that is in high demand, and short supply, the price goes up. It's the classic supply-demand scenario. Lithium battery manufacturing composes of 3 different kinds of resources; material, technology, and manufacturing. Technology and manufacturing react to the market according to economies of scale; ie when production is high, prices go down, which is the opposite manner that materials react. The question will be, which factors will win out?
Serge 4:26PM (8/19/2009)
The type of product makes ALL the difference. Oil is a raw material required to produce gasoline, an energy product, which is necessary to operate a car. As such meeting demand depends upon continuous extraction/production of oil. If OPEC decides to stop it demand will not be met and most people will not be able to drive. Lithium is a raw material required to build the car. Once the car is built, it does not matter what "Lithium OPEC" does; the energy product (electricity) is locally/regionally produced. At the end of life-cycle lithium is recycled, so once initial demand is met by extraction, continuous demand will be met by a combination of extraction/recycling.
Claro?