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25/06/2024
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Elevating Sustainability as a Crucial Metric in Lithium Supply Agreements

Lithium-ion battery demand is forecast to grow almost four-fold between 2023 and 2030 to 3.9 terawatt-hours, according to Benchmark’s Lithium-ion Battery Database.

This growth in battery demand will result in a corresponding surge in demand for the constituent critical raw materials. In 2015, batteries accounted for just 34% of lithium demand. In 2024, batteries are expected to account for 88% of the 1.2 million tonne demand, according to Benchmark’s Lithium Forecast.

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Although a near-term surplus of lithium is forecast until 2029, there is a growing desire from automakers and consumers for lithium sourced sustainably. But Benchmark’s Lithium Sustainability Index shows there is currently insufficient supply of lithium from companies with good environmental, social and governance (ESG) practices to meet demand now and in the future.

“The question of provenance becomes the most important question of them all,” Cameron Perks, principal analyst for lithium at Benchmark, said during a Benchmark webinar last week.

Sustainability drives commercial decisions

“On both the buy side and sell side, sustainability is now a critical metric when supply agreements are being discussed,” Daisy Jennings-Gray, head of prices at Benchmark, said.

As such, Benchmark tracks the progress and commitment to stakeholder-defined ESG indicators across all participants in the mineral mining and processing space for lithium, cobalt, nickel, and graphite.

The values are quantified through 79 indicators to give every player, whether operating or developing, an overall score out of 100. These scores correspond to the sustainability classifications as follows:

70-100 – Industry Leading
55-69 – Good Practice
25-54 – Moderate Visibility
0-24 – Limited Visibility

These ESG metrics are of increasing business importance to players across the supply chain down to the automakers producing electric vehicles.

“The sourcing strategies, particularly for OEMs, is that they’re looking for industry leading, good practice companies to fulfil their lithium requirements in order to fulfil, say, decarbonisation goals, not just for the company, but for the country they’re operating in,” Perks said.

But the supply of such lithium is limited. By 2026, Benchmark’s Lithium Forecast shows that lithium from recycled sourced or mined by companies with industry leading or good ESG practices is set to meet 45% of demand but drop to 35% by 2030.

Sustainability in pricing

With the desire for sustainably sourced lithium on the rise, there is a growing need for pricing mechanisms to reflect this. Benchmark now releases a biweekly sustainable lithium carbonate price.

The price is normalised to CIF Asia and follows Benchmark’s IOSCO-approved methodologies using first-hand collection of prices from active market participants with industry leading scores on Benchmark’s Lithium Sustainability Index.

“It gives automakers the opportunity to index contract price mechanisms to demonstrate supply chain sustainability practices,” Jennings-Gray said, adding that such a price also “incentivises producers to strive for better ESG transparency.”

The latest sustainable lithium carbonate price was reported at $14,525 per tonne, up 0.7% from two weeks prior.

 

Source: Benchmark Minerals

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