Lithium: Assessing the impact of higher freight rates on future lithium production costs

The International Maritime Organisation has proposed to reduce the limit of sulphur in marine fuels from 2020 which could have a notable impact on some sectors of global lithium production. The new legislation will ban ships that do not have the equipment to remove sulphur from carrying fuel that has a sulphur content greater than 0.5% (down from the 3.5% limit currently in place). To comply, ships will either need to install scrubbers to remove the sulphur or change to using low-sulphur fuels. With widespread installation of sulphur scrubbers looking unfeasible, however, the change in fuel type will come at significant cost. Around half of the variable cost of running a shipping line is currently taken up by fuel, and with the price premium between existing heavy fuel oil and low-sulphur alternatives widening, the impact on global freight rates is expected to be significant.

Roskill view: Using Roskill’s Lithium Cost Model Service, we can assess the potential impact that these changes will have on the lithium supply chain. The sectors most exposed to global shipping rates are those that source large volumes of feedstock from overseas, namely Chinese refineries reliant on imported mineral concentrate and plants processing direct shipping ore (DSO) from Australia.

To gauge the potential impact, we have modelled the implications of a 25% increase in shipping costs between China and Western Australia, which is forecast to a be a significant source of future lithium supply. Looking first at the cost of producing lithium carbonate from spodumene concentrate, here the impact on production costs would be relatively modest, adding around $50 (or just 1%) to the cost of producing a tonne of lithium carbonate. The impact on material produced from DSO would be far greater, however, given the significantly larger volumes of material that have to be transported to make a tonne of lithium carbonate. In this instance, a 25% increase in shipping costs would add nearly US$300/t to the final refined production cost of lithium carbonate. The implications on the global supply chain are even more significant when you consider that lithium carbonate produced from DSO is already amongst the highest cost in the industry, and this development continues to highlight the precarious position of lithium DSO mines and projects.

Roskill’s Lithium: Global Industry, Markets & Outlook report was published in June 2018. For more information or to download the brochure or sample pages, click here.

To discuss the lithium market with Roskill, contact David Merriman: merriman@roskill.com or Robert Baylis: robert@roskill.com