Lithium carbonate prices rose 47% in the first quarter compared with the average price in 2015, according to the most recent available data from data provider Benchmark Mineral Intelligence. In 2015, when most other metals and commodities still were in the doldrums, lithium prices rose 28%, Benchmark Mineral Intelligence said.

Orders for the soft metal show no sign of abating. A report from Goldman Sachs GroupInc. says lithium demand could triple by 2025 to 570,000 tons, driven principally by smartphone and electric-car applications.

Telsa isn’t the only consumer, but its voracious appetite for lithium is getting significant attention.

The Palo Alto, Calif., company said Wednesdaythat it expects to sell 500,000 cars world-wide by 2018, and its 2020 production would be one million vehicles, thanks in part to its coming Model 3 car. With a price tag of $35,000, it would be about half the cost of the Tesla Model S sedan. The company says it already has received nearly 400,000 orders for the Model 3.

Those orders will require a lot of lithium.

“In order to produce half a million cars a year…we would basically need to absorb the entire world’s lithium-ion production,” Tesla Chief Executive Elon Musk said at the unveiling of the Tesla 3 model on March 31.

Tesla also aims to become the world’s largest lithium-ion battery producer with its factory in Sparks, Nev. One Tesla Model S battery contains more lithium than 10,000 smartphones, Goldman Sachs estimates.

While the Earth’s crust contains plenty of lithium, which is the lightest metal on the periodic table, it is difficult to dig up. Most deposits are in remote locations that pose technological and logistical challenges. There are about a half dozen major lithium-producing resource sites world-wide, spread among Chile, Argentina and Australia.

Unlike gold, copper or many other commodities, lithium doesn’t have a spot market and isn’t traded on an exchange. Prices are negotiated individually through contracts between buyers and sellers.

Much of the demand is coming from China, where the government is turning to lithium batteries for use in electric buses and other vehicles. NextEV, a Chinese company that has said it plans to unveil its first electric car next year, could further stoke lithium consumption.

It isn’t just lithium that is experiencing what some analysts call the Tesla effect. Aluminum demand could gain from a development known as lightweighting, or substituting aluminum for steel to create lighter cars such as the all-aluminum body frame in Tesla’s Model S car.

Demand for copper, which is used as a conductor of electricity, also could rise. An electric car uses 60 kilograms of copper per vehicle, four times that of its diesel equivalent, according to producer Mantos Copper.

“The narrative is changing,” said Bart Melek, head of commodity strategy at TD Securities in Toronto. “We are headed in the direction where these vehicles are becoming affordable for the mass market. The technology is at a point in time where we could envision this as an ever-increasing factor.”

At the same time, demand for platinum and palladium could ebb, analysts say. These metals are largely used in catalytic converters to filter diesel fuel emissions, and have no use in battery-powered electric cars.

Fuel-cell cars, another new technology that uses platinum as a catalyst to combine hydrogen with oxygen to generate electricity, could boost the metal’s demand but these automobiles haven’t yet generated the same interest as Tesla’s electric cars.

Battery-powered cars and hybrids represent less than 2% of vehicles sold in the U.S., researcher Edmunds.com said, and they remain a long way from becoming mainstream. But Bank of America Merrill Lynch metals strategist Michael Widmer said widespread use of battery-powered cars could deal a devastating blow to platinum and palladium. “There is not much the industry can do on that front,” he said.

Even with voracious lithium demand from electric-car makers, some warn that the metal could eventually fall victim to oversupply issues that often plague commodities when producers rush to catch up with rising orders.

Some industry executives said demand for lithium could remain strong for three to five years. After that, though, the market could tip into oversupply as new capacity arrives.

Graham Kerr, CEO of South32 Ltd., a Perth, Australia-based resources company, said he is wary of investing in the lithium market on the basis of battery technology that is quickly evolving. “It is one of those niche kind of commodities that can be the flavor of the moment today,” he said “But if technology moves a different way, it doesn’t have many multiple uses.”

Some big global miners have watched closely the spike in lithium prices but haven’t decided if the market is deep enough to enter. Lithium demand is about 175,000 tons a year, according to Pure Energy Minerals , a Vancouver-based resources company.

“We will watch it...but even in some of the most optimistic projections, it is a relatively small market,” said BHP Billiton Ltd. CEO Andrew Mackenzie. He said it is a market the world’s biggest miner is unlikely to tap.

 

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