Simon Moores, Benchmark Minerals Intelligence
Today's guest is Simon Moores, CEO of Benchmark Mineral Intelligence, the world’s leading Price Reporting Agency (PRA) for the lithium-ion battery to the electric vehicle supply chain and a data and intelligence provider for the space.
Simon and Cody have a great conversation about the state of the EV battery supply chain and lithium in particular – where it comes from, how it's processed, what drives its price, the geopolitical considerations of its mining and production, and what to expect in the coming years and decades.
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Simon Moores / Benchmark Mineral Intelligence
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Episode recorded on January 17, 2023.
In this episode, we cover:
[1:50] Simon's background in batteries, mining, and journey to starting Benchmark Mineral Intelligence
[3:30] The role of EV batteries in driving the lithium market
[6:45] Primary method of lithium mining today and challenges for scaling long term
[12:44] Driving forces behind energy storage volumes today
[13:37] Supply chain for lithium today and current challenges
[19:36] Production of lithium in China
[22:10] Environmental impact of processing metals into chemicals for batteries
[25:25] The US plan for domestic lithium-ion battery processing and impacts of the Inflation Reduction Act
[30:00] Joint ventures and other key players building gigafactories
[33:24] Status of EV consumer market in China
[36:30] An overview of Benchmark Minerals
[41:11] Simon's short and long-term market outlook for lithium
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Jason Jacobs (00:01):
Hello everyone, this is Jason Jacobs.
Cody Simms (00:04):
And I'm Cody Simms.
Jason Jacobs (00:05):
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Cody Simms (00:15):
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We appreciate you tuning in, sharing this episode, and if you feel like it, leaving us a review to help more people find out about us so they can figure out where they fit in addressing the problem of climate change.
Cody Simms (00:40):
Today's guest is Simon Moores, CEO of Benchmark Mineral Intelligence, which is the world's leading price reporting agency for the lithium-ion battery to electric vehicle supply chain, as well as being a data and intelligence provider for the space.
(00:54):
Simon and I have a great conversation about the state of the EV battery supply chain and in particular about lithium, where it comes from, how it's processed, what drives its price, the geopolitical consideration of its mining and production, and what to expect in the coming years and decades. Battery chemistry is an area that I still don't know a lot about and I learned a ton from Simon who is truly a world expert on the lithium-ion battery market dynamics. Simon, welcome to the show.
Simon Moores (01:22):
Hey Cody, thanks a lot for having me on.
Cody Simms (01:24):
I am intrigued by what we're going to talk about today because I am definitely not a battery expert, nor am I a mining expert, and you are an expert in all of these things. And so I am incredibly excited to learn about what's going on with lithium, what's going on with the EV battery space. But maybe before we dive into any of that, help us understand how you got here. How did you become an expert in this world and take us through your journey.
Simon Moores (01:50):
Something I fell into actually about 15 years ago. I did geology at university, realized I wasn't very good at geology and I loved writing, researching, and got a job at a magazine called Industrial Minerals. My friends laughed, it was one of these magazines which was cool, I got to learn about minerals and where they're used and I got to travel the world and meet lots of different people. My friends just saw a geeky magazine, but I loved it and I was given, in 2006, Lithium as a subject to dig into, nobody had touched the subject back then for 20 years, I think was the last time someone had done a research piece in the magazine.
(02:28):
I was given graphite, and these two things back then, I liked them because the iPhone was just coming out. I think 2007 the iPhone came out, the Nissan Leaf was in the pipeline, this truly the first electric vehicle really, sorry, Tesla and Nissan were the first real mass market EV that people got excited about and batteries were becoming a thing. I was there for eight years, realized that actually to progress my career, I had to create something myself. And so we created Benchmark Mineral Intelligence, and Benchmark's sole function was to collect price data just for the lithium iron battery supply chain. From the mining side, all the key raw materials, all the way through every step of the supply chain to the batteries and sell that information and sell the advisory and the expertise that we gather along the way, independent company.
(03:20):
And that was nine years ago, I can't believe I'm now nine years on with 90 plus people in the business that we've got that we're still here and we're growing really quicker than ever.
Cody Simms (03:30):
Well, congratulations on all of that, what a journey. At what point did EV batteries become the driver of lithium? You mentioned iPhones coming out when you first started covering it. And so I assume for at least a little while, just the general consumer electronic space drove the lithium supply and demand, but it feels like that has tipped at this point to EVs, though maybe I'm naive even thinking that.
Simon Moores (03:54):
No, you're 100% correct. That's a really good question actually, I've never been asked that question. I believe 2018 was about when EV batteries or lithium-ion batteries as a whole, but certainly electric vehicle batteries because they're much bigger obviously became the driver of the lithium market. Rewind back to 2008, '9, '10 when the first lithium price spike happened in modern times really, the excitement then was, electric vehicles are a maybe, but certainly consumer electronics were driving it and maybe we would need one lithium mine. And so there was excitement on the fact we would need one extra lithium mine in a generation.
(04:32):
Now we need something like 20 plus 30 plus lithium mines depending on the size, different world. But 2018, '19 was the moment where over 50% of lithium ended up in batteries. And the final point is a really important one is, in my mind, when you have these niche critical minerals, as soon as a market gets over 50% of demand, as soon as it becomes the driver, then all of a sudden the price curves that you see, the lithium price going up and down, cobalt's the same, the price curves then become battery powered or they become driven by that primary market.
(05:06):
Whereas, if you look at nickel for example, the nickel is a 2 million ton plus industry that uses stainless steel. When you see nickel prices, they're driven by this mass market of stainless steel, not of batteries. So I do think that was a very important moment for lithium investors and the market as a whole.
Cody Simms (05:24):
That's an interesting correlation. So basically, what you're saying is, at that 50% mark of the supply of this metal, 50% or more of it is going to this one use case. Then to some extent, help me understand, does that define it becoming 'a commodity' where it's tied to this other market or is that an unrelated designation?
Simon Moores (05:45):
For me, it becomes a driver, certainly. So when you look at the price charts, you know it's from EVs and battery demand, you know it's going up and down because of this one end market and not some other factors. Does it define it becoming commodity? Well, I think lithium, and nickel, cobalt, graphite, they're minerals that are mined and dug out the ground, but they have to become a specialty chemical, which isn't that easy, there's a bottleneck they have to find this chemical to then be used in the end markets. So I define them as maybe specialty commodities because it's not like iron ore or coal or orange juice or whatever on the commodity scale, well, that is huge tonnages, very simple to produce and really it's a logistics game to get it into the end market.
(06:27):
Lithium, for example, is very different. It's not just digging spodumene mean rock out the ground, it's refining it chemically engineering it for specific end users. So it's not as easy as just a commodity, I like to call them specialty commodities and it's a new era for these things really.
Cody Simms (06:45):
Let's go deeper into that, speaking of mining, so how is lithium mined and produced today? What's the primary method of that and do you see other methods also emerging alongside the primary method?
Simon Moores (06:58):
Yeah, so two primary methods, the old school spodumene mean hard rock method, which is the oldest way to mine lithium. It's your classic mining, you're blasting and digging rock out the ground, you're then processing that rock down into a chemical powder. Lithium carbonate or lithium hydroxide are the two powders, it's not liquid, it's actually like a white powder, and then that gets sold to the guys that are making batteries.
(07:22):
The flip side, the other main way is from brines, and if you google lithium, this is probably the first picture that'll come up, is these amazing salt lake salt flats in south Lake.
Cody Simms (07:32):
It looks like a Mark Rothko painting, almost, is the visual I get.
Simon Moores (07:37):
Exactly that, and this amazing. You're right, it looks like paradise and it's these big salt flats with blue water it's actually lithium brine that then gets evaporated down to a liquor. So it's a liquid process that harnesses a sun, but you end up with the same product, lithium carbonate or hydroxide that then is also used in batteries. Two primary ways, that is the bedrock if you like the core of the lithium future for now and going forward.
(08:04):
Now, the problem with that is, can you scale these two supply chains quick enough? Well, actually you can for the short term, but the long term, you're going to need as many sources as you can possibly for many different reasons. Certainly, KA Lithium from Clay is the one that people have been talking about quite a bit, that's one of the ones that are next in the pipeline, but it hasn't been done commercially yet. Then DLE is the one that everyone's talking about, direct lithium extraction and various different ways of specifically lifting lithium out of brine without the need for evaporation, that's a technology play that's very interesting. And again, the brains of the daily are needed if we're going to scale this thing beyond 2030, and I would say those four are the main ones that all eyes are on.
Cody Simms (08:51):
And what supply growth do we need to see in lithium, both over the next decade and then potentially even beyond that as we move presumably to an all EV future from an automobile perspective at a minimum if not almost all forms of transport over time?
Simon Moores (09:11):
You're looking at, lithium, we're reaching this half million ton mark now. When Benchmark first started in 2015, lithium was something 160,000 ton market. So the fact it's three x three to four x in the last seven years is a big achievement. But the true goal is, people talk about getting to a million tons. I think if you can get to between one and 2 million tons with new producers, existing producers, all working hard to get lithium into the market, then really the next scale should be on 5 million tons and then beyond 5 million tons, that's the challenge we're facing now.
(09:49):
When I gave my presentation at Benchmark Week, our main conference in LA that we do every year back in November, I actually outlined a plan for 300 terawatt-hours of deployed capacity. This is the number that Elon Musk gave for complete sustainability, which is all vehicles electric, all energy, the ability to store. And I wanted to play with those numbers and actually what does 300 terawatt-hours of batteries in the wild mean renewing every year. And actually was quite doable, at a max, we think lithium can go to a 12 million ton a year market, but right now it's roughly half a million tons and that's over the next 20 to 25 years, 30 years.
(10:30):
Actually, it's 12 million tons, that's very achievable if you compare to other commodity markets, which can run into the 50 million, 100 million, nickels of 2 million, it's achievable, it's a bit like titanium dioxide as a good example. But the money needs to be going into mining, the money needs to be going into modern extraction that's environmentally responsible, and everything needs to put in that direction. Otherwise, all these gigafactories that are being built, they won't have the raw material, they won't have the lithium to make the batteries.
Cody Simms (11:00):
And I'm curious at that, you said 300 terawatt-hours is what Elon Musk was talking about. Do we have a sense of how much of that is in direct EV battery capacity versus, say, grid scale storage, et cetera? And depending on the answer to that, I wonder if you foresee another market tipping point where we moved from consumer electronics to EVs as their world where we moved from EVs driving the market to other forms of storage driving the market?
Simon Moores (11:25):
Yeah, really good point. So it was more than the forecast, it was a game we were mapping out to say, really, blink and you miss it, fast forward to 2050, which is when everyone needs to be net zero, so that's why we did 2050 on there. And then we said, by that point, we assume two thirds was ESS, energy storage and then one third of battery demand was electric vehicles because the energy storage market is going to be significantly bigger than the EV market once it gets going. Now, the question on that side is that, 100% lithium-ion, we actually had it down at around 60% lithium-ion and then 40% other technologies, which it's far more competitive in that market. And that's how we mapped it out.
(12:05):
And in terms of tipping point, last year was a big year for energy storage. The energy storage market last year felt like EVs back in 2015. No one's really talking about it yet because there's so much news flow in the electric vehicle industry. But they use the same batteries, same chemistry that the ESS market has suffered in recent years because all the batteries are going into cars. But now, we're starting to see some traction on this energy storage space, so going forward, you've got two turbo chargers rockets on the lithium market that is going to add more pressure onto the suppliers.
Cody Simms (12:44):
What's driving energy storage volumes today? Where are you seeing most of those batteries going in terms of installed applications?
Simon Moores (12:52):
Mainly off grid storage is the primary because you can have retail storage or people buying Tesla power packs, there's very small scale at the moment and a lot of people can actually get those small scale batteries, there's a backlog for orders. Whereas, if you have, they're actually gigawatt hour up installations now. When we used to track these many years ago, they were like 250 megawatt hours, that was big, 500 megawatt hours was exciting, but now really you're one giga hour and above.
(13:20):
And so there's confidence in this ESS market to actually install bigger and bigger batteries in the giga hour space number, if you like. And for me, yes, that's really exciting, but it's piling on load of pressure to supply chain that's quite struggled in the last few years to keep pace.
Cody Simms (13:37):
Let's talk about the supply chain. So today, the lithium supply chain, as I understand it, comes heavily from Latin America, Chile, Argentina. I think Bolivia has a huge amount of potential supply, though I think a lot of it is not yet available for mining. And then there's some in Australia, some in Zimbabwe, but I have now given you the extent of my knowledge on the lithium supply. So enlighten us further please.
Simon Moores (14:05):
In a nutshell, you got it right. You've got Australia, Chile, Argentina as the three big ones. Chile's had its political problems, it's slowed its expansion or, let's say, long-term expansion plans. Argentina on a political level, in many ways people, they're comfortable with its instability and it doesn't really stop new lithium mines being built so that carries on. Australia is a place that people love to invest and build new mines. Outside of that, it's really interesting, actually Canada are coming to the fore now powered by the Inflation Reduction Act in the US that is really seeing companies like Liven that used to run or that bought Nemaska mine spodumene mean mine and Canada to push that for that's hard rock. You've got clay deposits in the US, you've got spodumene mean Europe, spodumene mean hard rock deposits, Zimbabwe, hard rock deposits, an acted one there that might be beginning to expand slowly.
(15:05):
But the thing is, you've got three big countries, Bolivia as well, we can talk about, but that's very much still politics over action. But really, you've got three big lithium countries, Chile, Argentina, Australia, and then outside of that, we talked about this 10 years ago, and it's still the case today, where these new countries that want to produce lithium are still not doing it yet. And for me, that underlines just a fact of life with mining, is it takes on average 10 years to finance and build a mine and a chemical plant, it takes two years to build a gigafactory, we call this the great raw material disconnect. And still with all these gigafactories being built, that communication with the upstream isn't quite there for everybody, it's there for maybe a top 10, 15%, but it's not there for the rest of it. And I really think the chickens will come home to roost in the next few years unless we play catch up on that.
Cody Simms (16:01):
By upstream, you're referring to the mining companies themselves, is that right?
Simon Moores (16:05):
Yes, Cody.
Cody Simms (16:05):
So these are the Albemarle and other large corporations that are actually putting mines into production around the world.
Simon Moores (16:16):
Exactly. Sorry, good point. From my perspective, upstream is the mining guys, it's following the river all the way upstream to the source, that's where the mining starts. Downstream would be batteries, building gigafactories. Midstream, we call the cathodes, anodes, and the chemicals. And actually with batteries, the midstream floats and gets located in certain areas for various reasons. But you can't move the best minds in the world, you can't move the biggest and most economical minds.
Cody Simms (16:46):
We're going to take a short break right now so our partner Yin can share more about the MCJ membership option.
Yin Lu (16:53):
Hey folks, Yin here, a partner at MCJ Collective. Want to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019, has since then grown to 2000 members globally. Each week, we're inspired by people who joined with different backgrounds and perspectives. And while those perspectives are different, what we all share in common is a deep curiosity to learn and bias to action around ways to accelerate solutions to climate change. Some awesome initiatives have come out of the community. A number of founding teams have met, nonprofits have been established, a bunch of hiring has been done. Many early stage investments have been made as well as ongoing events and programming like monthly women in climate meetups, idea jam sessions for early stage founders, climate book club or workshops and more.
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Cody Simms (17:55):
All right, back to the show.
(17:58):
It's interesting to hear you use a little bit of an oil and gas metaphor with the upstream, midstream, downstream supply chain. To that point, do you see an OPEC like pricing cartel emerging from the upstream mines and or geographies that have access to this resource, given that it's a small number of countries, as you mentioned, that have the bulk of the world's supply?
Simon Moores (18:22):
At the moment, no, I don't think there's any real benefit. The producers have control over the market anyway, it's a small market that's growing. We need as much lithium as possible, and the producers are reacting for the most part within their own parameters and their own plans. I think the only way you'd see an OPEC style thing is if countries start to nationalize lithium, which would be absolutely terrible for the market. So if countries like Bolivia wants to do it, if countries like Chile or Argentina even mention nationalization or putting any plans together which has been floated around, it's always been discussed, but it's never quite happened, then you could have an OPEC style thing because they're think in very different terms.
(19:04):
But quite frankly, the lithium market yesterday, today, and for me, tomorrow or the next 10 plus years is a market that is going to be defined by the producers. There's always going to be demand, prices are always going to be, let's say, high enough to bring new supply on at pretty much every level, which makes it challenging for investors because, how do you pick and choose on the economics? And I think it'll grow to 2 million tons before we ever see even a hint of an OPEC style cartel.
Cody Simms (19:36):
Though it is interesting, for the most part, the countries you mentioned, as you said, some of them have some political instability to them, which could potentially put pressure on nationalization and et cetera as those play out. But as you said so far, no strong signs of that. So let's talk about production, as I understand, some three fourths of production of lithium today is in China. China doesn't actually have the raw material on their national soil, but basically, all roads lead to China when it comes to converting these metals into chemicals that then can be turned into batteries. Is that the flow that I should understand?
Simon Moores (20:18):
That's exactly correct. So it is really interesting that when people think of China in terms of industries and supply chain, they actually also think of China being a big mining country because it's such a big, obviously, country. But for the battery supply chain, it's actually the only big raw material that it mines and dominates is graphite outside of the battery, but it's also rare earths. So that comes up quite a lot in this critical minerals space. But for lithium, for nickel, for cobalt, it doesn't actually mine very much of this material due to the natural order of things where these mineral deposits are, but as a result, it dominates the midstream.
(20:57):
About 15 years ago, actually, China began to massively expand its midstream chemical refining capacity for these raw materials, not because of batteries traditionally. Lithium was actually because of ceramics and glass as the west outsourced all of its manufacturing to low-cost regions, including China at the time. And we were happy to get our ceramics and glass being shipped from China to Europe to the US to North America. Then of course, they have to build the chemicals to make it, but what happens, you need the same lithium carbonate as when into ceramics and glass pretty much as you do going into batteries, so a slightly more refined product. As a result, China has the knowledge, it has the capacity of the midstream and everywhere else lacked. And that story of lithium, it was the same for rare earths, it was the same for pretty much nearly every commodity and critical mineral out there.
Cody Simms (21:48):
I think you all shared a graphic or maybe it was you on your personal Twitter recently outlining the processing of key minerals and from nickel to cobalt to graphite to lithium to manganese. China was 60% plus on every metal basically, and more like 70 to 80% on most of them, which is interesting to say the least.
(22:10):
I'm curious, on the processing side, so we talked about what mining looks like, you either have traditional style rock mining or you have these big brine pools. On the processing side, what is the environmental impact of processing many of these metals into the chemicals that are needed to become a battery? What does that look like from an environmental perspective and just from a commercial perspective?
Simon Moores (22:39):
Lithium, from brine mining, the challenge, the discussion that keeps coming up on the environmental/ESG side is water usage. Certainly in Chile and Argentina, a lot of these operations are in areas where they're in deserts where water is and sometimes hard to come by, so that's a challenge. It's a challenge constantly with the lithium producers have to battle, and whether it's a political challenge, whether it's a real challenge on the ground, it's there and present so that's just the way it is.
(23:09):
With hard rock mining, a lot of the times it's acid. Because with hard rock, you use a lot of acid to dissolve the rock, but it's the same in lithium, same in cobalt and many of the other hard rock mining processes. Disposal of acids certainly within China has been a big issue in the past, acid being disposed into just the waterways, the local water streams and rivers. So strong processes there is needed to control that because a lot of acid is used in that process. And I would say they're the two main ESG issues from a lithium production perspective that we face.
(23:44):
One final thing I'd say on the lithium side is, these mines are nowhere near as big as coal mines, copper mines, the brine mining actually is among the lowest impact. Whilst it looks like quite a lot of land on the surface, it's effectively quite a big plumbing operation. The spodumene mean mines in Australia nowhere near as big as the big commodity mines that we've seen in the past. So there is a bit of kickback saying, well, you can't replace oil extraction or coal mining, you're just going to replace it with lithium mining. It's not the same scale, it's not the same impact, but it does have its challenges.
Cody Simms (24:17):
If I'm understanding correctly, while China dominates production from an ownership perspective and a percentage of the market perspective, this isn't happening onshore in China, these are still happening in the countries of origin of the ore for the most part. Or they're doing the mining either by rock or brining and then producing it, they're locally. So we talk about China dominating the supply chain here, but is this material actually finding its way back into China's national borders at some point?
Simon Moores (24:46):
Yeah, so from the spodumene mean perspective where Australian's mining spodumene mean, it has to refine it down to a concentrate just because you don't want to be shipping waste around. Then that concentrate does get shipped into China, pretty much all of it goes to China and that's where your next step processing, which includes a lot of acids happens.
(25:05):
Whereas, on the brine side, actually it's a good point, you are going straight to chemical there. So it is a different process and therefore less of an impact. A lot of it happens while all of that chemical processing first stage happens on site with brine extraction. Whereas, with hard rock extraction, it happens within China.
Cody Simms (25:25):
Thanks for clarifying that, and just always helpful to understand not just the economic impact locally but also the environmental impact and where those challenges occur. And so let's talk about the US, so the US has significant focus through the Inflation Reduction Act of shifting the supply chain, as I understand it, for lithium-ion batteries. And I think by 2024, there is a focus of having 40% of the minerals for lithium-ion batteries extracted or processed domestically and 80% by 2027 for anyone that wants to qualify for the various rebates and incentives through that program.
(26:09):
How does that happen? It sounds like that is a significant challenge given what you've just laid out in terms of both where the supply is and how it's processed today.
Simon Moores (26:19):
From a face value, that isn't going to happen on face value, it's just too short a timeframe to make those goal point or to hit those goalposts or get the ball in the goal, let's say. But it's aggressive and actually what it sparked is that the US needs this midstream refining capacity, that it needs it at scale and it needs it quickly. It needs action really now to get this capacity set up by 2030, so you're going into the next decade with a much more stable, much more localized supply chain in addition to this global supply chain, which isn't going to go away, it's going to be for jewel thing at the same time.
(26:57):
But the thing about the Inflation Reduction Act, it's quite interesting since it came out, which I think is a fantastic move. It's the most aggressive thing I've ever seen on EVs and batteries and mining from any government, so specific, and it's really driven the industry to ramp up investments everywhere with the new US. However, it's funny, people are still picking it apart. Like, actually, this paragraph says this, but what does it really mean? And I think what you'll see over this year and probably next 18 months, you'll probably see some amendments and clarifications to the Inflation Reduction Act to actually then help people set up lithium refining facilities, people build new mines, cobalt, nickel, graphite within the US to actually act as a bit more of this money and this incentive.
(27:43):
Because otherwise, at the moment, it's still a bit blunt and it means that refining, pun intended, but it's for the first time set a blueprint for industry to follow, which is very un US like in many ways, or let's say, the market should lead and everyone should follow. Actually, this is the government leading a blueprint and have the market reacting positively. So I think that was a big step forward.
Cody Simms (28:04):
It seems like the natural outcropping of this would be EV manufacturers starting to verticalize into lithium processing and moving into the battery space given that, really what I'm hearing is, US shouldn't have a dependency on China-based battery production. Is that a fair reading of the tea leaves on my part? Do you see that starting to happen?
Simon Moores (28:30):
For sure, completely fair reading, and it is happening. The problem in the past, I've spoken to the Senate three times now on this, one was in 2019, first one actually was in 2017, and it was hard for the Senate to react because it was the mining side of the Senate, the Energy Natural Resources committee. They were all for this, we can't be dependent on China or other countries for critical minerals like we are with maybe energy before fracking. So it was like, we've seen a story before, let's try and fix it. The problem was, none of the industry was here, as in the US, I'm based in London by the way. But none of the battery industry was being built there, there was a couple of gigafactory and that was it.
(29:10):
Now, you've got 30 gigafactories in the pipeline in the US, more coming, you've got seven active, I believe, and as a result, well, you need to still see cathode manufacturing and anode manufacturing there. But for the first time, the guys that buy these raw materials are located in the US, before they were all located in China. And so for me, it's like once you fill in this, the batteries part of the supply chain was the first tick in the box, the first leg or block that was needed to be put down. Now you really need this cathode capacity, and then once there's big cathode capacity to match the gigafactories, then the raw materials will flow and you'll start to see the supply chain build out from downstream to upstream. We're just seeing the beginning of this and this I think will be the trend of the next seven years, the rest of this decade.
Cody Simms (30:00):
And who's building most of these gigafactories? What's the underlying economic structure of these look like?
Simon Moores (30:08):
A lot of them are joint ventures, which will be interesting to see, actually because I don't think joint ventures work long term. But joint ventures between big autos, General Motors, Ford, and generally Korean manufacturers, so you've got to test the Gigafactory, which was the first JV, but it was with Tesla and Panasonic, really it's a Tesla plant. And now actually, you got these joint ventures, the next phase will be battery makers going out on their own in the US. You're seeing that with Panasonic in Kansas, that was really interesting, I thought. Panasonic haven't picked any partners for that, they haven't said we're going to sell exactly to this EV maker or that EV maker or that automaker, they said, we will build batteries on mass and then build our contracts after that.
(30:48):
I think that facility and that plan is a much stronger long-term plan from the Japanese there. And I just think that'll open the gate for even more tier one lithium-ion battery producers. The big question for me is, will the US allow Chinese battery makers to go alone on its own? Will they allow CATL? Considering the geopolitical situation, will CATL, the world's biggest battery maker, be allowed to set up shop within the US? The gigafactories for me are like, I call them geopolitical hot potatoes, they've got everything in there. They've got the car industry, the battery industry, they've got Asian companies, American interests, they're fascinating and I think that melting pot in the US is just beginning.
Cody Simms (31:33):
And you mentioned Japanese companies, are you seeing Japan? You're in London, are you seeing UK, also Europe? What's been the response in those geographies? I imagine to some extent, they didn't see the Inflation Reduction Act coming, none of us really did. And many of those countries are probably scrambling to figure out, how do we create similar incentive structures to onshore ourselves? Whereas, some geos are probably saying, let's just lean into China and become tightly aligned with the Chinese side of the market. How are you seeing that play out?
Simon Moores (32:06):
Europe is quite interesting actually, because, well, certainly the European Union were quite ahead of this game even before the US in terms of talking about batteries, aligning a plan to align funding with finance industry and government, the three pillars that you have to align to make all this happen. The EU were pretty forward looking and good on that, they started around 2018 on this and that did spark a number of gigafactories around Europe to be built. The problem is, the European Union is not a country, it's a collection of interests. The ideas then go back to individual countries and then the countries add their own twist and their own flavor onto that.
(32:43):
Whereas, the US obviously is a big country and actually when it makes decisions like the Inflation Reduction Act that could apply to everybody, it all happens at the same time. And I think they're the two biggest distinctions, that whilst the US was late to this, what a phrased global battery arms race, it is now moving quicker than Europe on these things. And so I would say they're the two main differences between those two regions. China, different ballgame, of course, China can move even quicker, the government backs the biggest producers and actually makes the plans for them as well. So I think really, the US and the EU are two interesting case studies that are quite different ends of the geopolitical spectrum.
Cody Simms (33:24):
And let's talk about what's going on in China domestically right now. So as I understand it, China is moving into, frankly, a quite different phase than the US, where they're actually ending consumer subsidies of EVs right now. And so A, why? And B, how do you foresee the actual consumer market changing in China in the near term and does that move the needle on all of these markets that we talked about at the upstream and midstream?
Simon Moores (33:52):
Yeah, it's interesting, actually, why is a good question. The EV market has got a bit overheated the last two years, certainly since COVID. Of course, China is the hotbed of that, the top end price in lithium, if you like, is a perfect example of that, moving to $80,000 a ton last year from a time 3, 4 years ago when we were used to $10,000 a ton. So these overheated volatile market across the whole supply chain for EVs isn't good long term for China. And so I think stopping subsidies, cooling down the market a bit is a way to separate the wheat from the chaff, if you like, separate those non-economic companies, lower end and actually bolster, send more demand to the high quality, bigger manufacturers. If it doesn't quite work, then for sure China's going to come back in with another subsidy.
(34:45):
But I think it's just a natural step from, what I call, from startup to scale up. China is well ahead of pretty much everyone else except for Tesla on this in terms of that phase of startup to scale up. And it might work, we'll see if it cools demand down, they would hope not too much but enough to professionalize the industry.
Cody Simms (35:07):
Interesting. So basically, trying to manage supply constraint on the lithium side that has driven a price skyrocket over the last year, was what I'm hearing you say, so that it can help them really focus on who are the leading producers on the EV side, I think you said. Because obviously, CATL is clearly the leading producer on the battery production side to help solidify the market around key market leaders. Am I hearing what you said correctly?
Simon Moores (35:33):
Yeah, it affects the whole supply chain, whether you are producing lithium chemicals or mining. Actually, on the mining side, there's been lipid light mining that's boomed in China. It's the low end of the spectrum, it doesn't all make it to batteries. But again, this happened because the price was high from the mining side through to batteries of CATL, but a lot of small battery makers have started to set up shop within China. Too many EV makers, of course, the big EV makers like BYD are like world class electric vehicle makers, but you've got a lot of small EV producers there that don't stick to certain standards that's not good for China or its ambitions globally, let alone domestically.
(36:09):
Actually, the calling off of the subsidies can cool the market, can help professionalize this industry. It will be overall good news, long term for the biggest and highest quality producers. It's bad news for the ones that are operating at the lower end of the space, and that's relevant from mining lithium all the way through to EVs.
Cody Simms (36:30):
And Simon, I think that brings us back to your company and Benchmark Minerals. One of the things that you all do is that, if I understand it, basically are a price reporting agency on lithium and other key metals in this whole space. What does that mean, and how do you get to be that?
Simon Moores (36:49):
One of our big functions is price reporting. So we collect price data from buyers and sellers across the lithium market. We do it for nickel, graphite, cobalt as well, cathodes, anodes and batteries now as well. But the goal is, we speak to buyers and sellers, whether sometimes it's every day, every week or every month depending on the cycle of the assessment. We put then our own lithium prices out there as Benchmark prices, our independent assessment, and then people can use those prices to put into their contracts when they're selling lithium, when they're buying lithium, if they're buying batteries or cathodes, same thing that actually helps keep the industry honest. Existing people coming into market that want to anchor their contracts against an independent price. New people learning about lithium, they don't know what the price of lithium should be, they come to us, look at what we are saying, they use that as a basis. And it's a subscription business that is well trodden in the oil markets, but it's relatively new certainly since we started 2015 for lithium. And that's I would say the primary part of what we do.
(37:54):
Secondary, what we do is data collection because the process of us being embedded in the industry, speaking to these guys every day, we're collecting loads of data points as well on every part. We can track a lithium-ion all the way from the mine through to what EV it goes into. We sell that and subscriptions a third part of what we do as advisory, so governments, OEMs, battery makers, miners come to us and say, well, they have various challenges, it could be that we want to build a new gigafactory, it could be they want to put a new policy in place, they come to us for advice as well.
Cody Simms (38:28):
How do you separate the parts of the business that are providing consulting to these companies from those that are helping to establish the price of the market? Or are you not establishing the price you're essentially reporting on the price, maybe that's the distinction there, I don't know?
Simon Moores (38:42):
Yeah, it's a bit of both really. Firstly, how do we separate physically different buildings, culturally and everywhere in between? The price reporting is such a sensitive part of the market and part of the business, shall I say, that part's easy, you separate it out completely.
(38:58):
In terms of setting the price reporting, it's a bit of both, we report the price, but now it's using contracts as well. So it becomes setting the price to a certain extent, but really it's producers that are still deciding their own prices with the aid of what we do. We aren't the market, they're independently giving our opinion of the market, which is then oiling the wheels to push this industry forward, but keep it honest at the same time.
Cody Simms (39:25):
And how much of the market today is a spot market and how much of it is a futures or contract market? Are people buying for a few years from now or based on where they see supply and demand going, or is most of it happening in real time? And the separate way of asking, is there a lot of speculation happening in this market today or is most of it being bought and sold for actual production purposes?
Simon Moores (39:49):
Actually, in terms of the lithium price itself, so the vast majority, 80% plus sits in contracts, short, let's say medium and long term contracts, one year plus, that then have break clauses in it that then get renegotiated as we go along. The spot market, if you want to call it a spot market, would exist in China, that's why those prices in China are more volatile and they go higher. In terms of futures market, there isn't a futures market present. The futures market in my eyes really sits on paper of a contract that's signed for two years time. So if you're building a new lithium mine, you can say, we're going to be on stream producing lithium in 2025, we agree a base price of X, and then we'll negotiate everything after that. That in effect is a futures price, but not in the traditional way that maybe people would think if they're used to different financial mechanisms like exchanges, and I'd say that's the lay of the land at present.
(40:42):
Actually, all the speculation isn't really in the lithium price, but it's in the stock markets. So if you look, all these companies are public companies, a lot of the times now you'll see it like a big lithium company falling in its stock price, but the price's going up. So pretty much, all the speculation is around these companies on the stock market rather than in the lithium price. So when you see the Benchmark lithium price, it's pure supply and demand that's driving that.
Cody Simms (41:11):
I actually noticed that recently, which is that the price of lithium is up significantly and yet many of these lithium mining companies stock is relatively down, which was surprising to me. And then I saw a market outlook that says, Goldman Sachs forecasts a flip to a surplus of lithium supply here shortly, and Morgan Stanley believes there's going to be overproduction of EV batteries and decelerating demand growth. And I honestly was scratching my head on, how is that possible? We're in this world of booming growth in EVs, booming growth in energy storage as you mentioned earlier on in the recording and seemingly limited supply, but it sounds like maybe that's not the case. So maybe give us your short term and your longer term market outlook that you see happening in terms of supply and demand.
Simon Moores (41:59):
It's an interesting one, it depends what perspective you are looking from. If you're looking from all-time highs of lithium, where we were at a few months ago for the price that's come off a little bit, then if you're at the top of mount of Everest and you look down on a K2, you're still looking down on a massive mountain, but it's down. Whereas, if you're at the bottom of that mountain and you look it up, then it's something that's almost impossible to surmount. And that's where we are with lithium at the moment, we're coming maybe to the end of this overheated market that's going to be a bit of reality that sets in this year. It might be softening demand because of what we discussed happening in China self-inflicted softening demand, if you like, definitely because of high inflation across the board, definitely because of Russia's invasion of Ukraine and the high energy prices.
(42:43):
So these macro factors actually are taking a little bit of steam out of an overheated lithium and EV market. In many ways actually, I think we're going into that environment, so the stock prices will be volatile as a result, but it buys the industry time to build this supply chain out because we almost haven't had time to breathe in the last two years. And now we're, I think a little bit of a cooling thematic buys the industry time to build this EV supply chain from scratch because that's what's happening.
Cody Simms (43:11):
Simon, such an incredible overview of everything going on in this space. What didn't we cover that you feel like is an important topic to make sure that our listeners here are familiar with?
Simon Moores (43:22):
I will say the long term thing, which is a phrase I like saying, for me, the lithium-ion battery is here to stay. Everyone talks about different battery chemistries and technologies going forward, but the lithium-ion battery is getting better, it's becoming cheaper, lower cost, and they're becoming more abundant in these gigafactories.
(43:41):
And whilst it's going to be a bumpy ride, I think those three tailwinds are really what's pushing this platform technology forward. And I think that as a result is going to last the rest of this century, not just out to 2050. I think we've got 70 years of lithium-ion battery getting better and getting cheaper and becoming abundant, and I think that, for me, is the long term most important thing in this whole thematic.
Cody Simms (44:05):
Simon, I super appreciate you coming on today. Thanks for sharing everything about this space with us, and I learned an absolute ton. Hopefully everyone else did too.
Simon Moores (44:14):
No, I appreciate it, Cody, thanks a lot. Great conversation.
Jason Jacobs (44:17):
Thanks again for joining us on My Climate Journey podcast. At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem-solving capacity. To do this, we focus on three main pillars, content like this podcast and our weekly newsletter, capital to fund companies that are working to address climate change, and our member community to bring people together as Yin described earlier.
(44:43):
If you'd like to learn more about MCJ Collective, visit us@www.mcjcollective.com. And if you have guest suggestions, feel free to let us know on Twitter at MCJ Pod. Thanks and see you next episode.
