The most ambitious climate bill in U.S. history cleared a key hurdle on Saturday, but a lithium executive said the biggest catalyst for the critical materials industry would be an overhaul of the country’s permitting practices. The bill, which the Senate voted to advance Saturday evening, includes $369 billion for climate initiatives. For critical materials, it includes incentives for domestic production and links electric vehicle credits to domestic manufacturing. It also appropriates additional funds for the Defense Production Act. “Incentives for the EV supply chain are positive from a market standpoint, but the market is pretty strong,” Albemarle CEO Kent Masters told CNBC. “The permitting part of the regulation is probably the most helpful thing for us.” The company operates the Silver Peak mine in Nevada, which is currently the only lithium mine operating in the US. It is relatively small scale, and the company plans to open a new mine and processing facility at Kings Mountain in North Carolina. “It’s very good quality and significant scale, and it’s enough to build a material supply chain in North America,” Masters said. The capital-intensive nature of mining and the many permits required mean the industry is slow. Albemarle hopes that because Kings Mountain is an abandoned mine, meaning it was previously operating, it will avoid some of the bottlenecks facing new projects. The company hopes to have the facility in place by 2027, though Masters was quick to note that it all depends on permits. The industry is resource intensive and can damage local ecosystems. Another player, Lithium Americas, has been working for years to get its Thacker Pass mine in Nevada up and running. The project has faced delays in part due to concerns from the surrounding community. Some environmental groups also argue that the focus should be on maximizing output from existing mines and strengthening recycling rather than building new facilities. The International Energy Agency predicts lithium demand to grow more than 40 times by 2040 according to its Sustainable Development Scenario. Building local supply chains In March, President Joe Biden invoked the Defense Production Act to encourage domestic production of key materials needed for an electric future. Biden has said that securing domestic supply chains for these resources is a matter of national security. China is a key player, refining 56.5% of global lithium, according to Benchmark Mineral Intelligence. The US, by comparison, refines just 2.1%. Lithium has gained widespread attention this year due to a massive price jump. The upward momentum has cooled slightly in recent months amid recession fears and a slowdown in demand as China locked down to curb Covid cases. But prices have still risen more than 300% over the past year, according to Benchmark. Lithium surge boosts miners’ returns The rapid rise in prices has boosted the financial performance of lithium companies. Albemarle raised its guidance for the third time this year when it reported second-quarter results on Wednesday. The company’s net sales increased 91.2% year over year to $1.48 billion. Adjusted earnings per share were $3.45 last quarter, up 287% compared to the same quarter in 2021. Amid rising lithium prices, the lithium division’s net sales of the company increased by 178% from the first quarter of 2022, to 891.5 million dollars. For the full year, the company now expects net sales to be between $7.1 billion and $7.5 billion. That’s up from the $5.8 billion to $6.2 billion the company projected as recently as late May, when it raised guidance. The company also raised its full-year outlook when it reported first-quarter earnings in early May. Albemarle has restructured its contracts to try to capture rising lithium prices. Traditionally, their contracts were long-term in nature, but now they can track lithium price movements more closely. The price of the metal previously soared in 2017 and 2018 before collapsing as the market became oversupplied. This led to a lack of investment in new production, which is why prices have been rising in recent years. And with the world focused on rapidly moving away from fossil fuel energy, lithium will be critical. Looking ahead, Masters said he believes the market will remain tight. And while prices could moderate some, he doesn’t expect them to return to 2019 levels. “It was a big negative for the industry, not just lithium, but EVs in general,” he said. “So now we’re chasing that curve, whereas if they had stayed, there might have been a little bit more investment.” Rising lithium prices have created challenges for auto companies, which in turn have raised prices for consumers. Legacy car companies and new entrants have announced ambitious goals for electric vehicles, which also raises the question of whether there will be enough supply. Lithium is by no means a scarce resource, but mining and refining it takes time and a significant upfront investment. Tesla’s Elon Musk has been a frequent commenter on the growing demand for crucial raw materials. “Lithium processing is crazy,” he said on Tesla’s second-quarter earnings call in July. He called on companies to get into the refining business, saying it “can’t be lost. It’s a license to print money.” Tesla is one of Albemarle’s customers. “The market really wants a local supply chain,” he said. “The government wants a local supply chain, but so do our customers.
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