Economic Analysis of Lithium Market: MAE101, Deakin College, 2018

This economics assignment focuses on analyzing the market for lithium, particularly in the context of increasing demand for electric vehicle batteries. It examines Australia's role in supplying raw materials like lithium to Chinese carmakers and the potential impacts on the global lithium market. Th...Read More

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Running head: ECONOMIC ASSIGNMENT
Economics assignment
Name of the student
Name of the university
Author note

ECONOMIC ASSIGNMENT
Table of Contents
Answer 1....................................................................................................................................2
Answer i)................................................................................................................................2
Answer ii................................................................................................................................2
Answer 2....................................................................................................................................3
Answer i.................................................................................................................................3
Answer ii................................................................................................................................3
Answer 3....................................................................................................................................4
Answer i.................................................................................................................................4
Answer ii)...............................................................................................................................5
Reference list..............................................................................................................................7

ECONOMIC ASSIGNMENT
Answer 1
Answer i
According to the article it can be said that the rise in the demand for the raw materials
for making the batteries which are used in electric vehicles have been benefitting Australia
for quite a long time. In the article “Australia is the new frontier for battery minerals” it has
been found out that the famous company named Atlas Iron have known to shipped poor
quality iron ore of value A$3.5bn to China in the year 2011 (Leni 2018).the famous mines of
Australia producing cobalt, lithium and also nickel have been shipping a large amount of the
raw materials to the carmakers of china. Demand for lithium has become so huge that it will
be facing shortages in few years. Australian lithium suppliers also state that they will be
providing huge amount of lithium and iron ore for the Chinese battery manufacturers.
Therefore, it can be quite doubtful of the profit which the electric vehicles can make as full
electrification of cars will take a lot of time to develop.
The following article states the various factors which will be affecting the various
supply and demand of the lithium in the world market. the articles which have been given
have been found that demand for lithium usually depends on the rise in the usage of the
lubricant grease, medicines, ceramics, glass and batteries. When the use of the electric
vehicle will rise, demand for the batteries will be rising. The article also states that demand
for lithium will go up in few years. Lithium is usually produced by some of the major players
who are SQM, FMC Corp, Albemarle and also the producers of china. The lithium supply is
therefore said to be mainly dependent on these major players. It is also known that Australia
is ranked first in producing lithium.

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Answer ii
Lithium production in Australia known to have an oligopoly market structure where
lithium is known to be one of the important inputs for battery production using for consumer
electronics. Lithium price has also known to have gone up in the battery dependent industries.
Currently the market of lithium is operating under the oligopolistic structure with only few of
the companies controlling the vast majority of supply. Oligopoly market structures are
characterized by few independent firms. The few firms here hare the Chinese producers,
SQM, Albemarle and FMC Corp. firms in the oligopoly market structure will be changing
their price according to the competitors in the market. the oligopoly market structure s such
that the firms will be in competition. The four firm concentration ratios will be using for
quantitative description of the oligopolistic market structure. It has been known that the
oligopolies are mostly the price setters instead of the price takers (The Economist. 2018).
Firms in the market structure of oligopolistic markets colluding for stabilization of the
markets for reducing the risks for development of the products. The commodities that are
usually sold in the oligopolistic market structure are either homogenous in nature or
differentiated. The oligopolistic market structure is such that the all the firms are in
competition.
Answer 2
Answer i
According to the chart it can be said that the global weighted average price of lithium
was quite low in 2016. Although in the month of January the price of lithium had been the
lowest. The lithium price again rose up from the year 2017 and had been found to be the
highest in the beginning of the year 2018 after which the price fell down in July.

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Answer ii
The factors which explains the changes of the lithium price between the two years are
a result of the contracts of the rest of the world and due to the market balance outside china.
The longer-term nature of the markets which is present outside china will increase the price
of lithium during the short term (The Economist. 2018). The price will therefore will be
preventing the lithium price which will be falling in the future. The Chinese markets are also
known to be quite tight in nature which will lead to the long-term sustainability of the market
Answer 3
Answer i
Demand for the lithium will be also dependent of the lubricant grease, ceramics,
batteries, glass and also in some cases used in batteries. Demand will be also depending on
the batteries of various kinds of electronic vehicles. Lithium is also known to be used in the
ceramics industry for production of glazes (The Economist. 2018). The lithium demand also
depends on the ceramics industry and its demand also depends the batteries which are usually
used by the electronic vehicles of china. Lithium is also used in the health products and also
in the greases which are used for maintain good stability and water resistance properties. The
lithium demand also therefore depends on the usage of the lubricant grease. Lithium is also
used in case of ceramics industry.
Since lithium is known to have oligopolistic market structure, the supply of lithium is
mainly in the hands of Chinese producers, SQM, FMC Corp and Albemarle. The second
highest producer of lithium is Chile which comes after Australia. Over all Australia is known
to be the first one in the production of lithium in the world.

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Figure 1 Market for lithium
Answer ii
Figure 2Market for oil and lithium
As there is rise in the usage of the electric vehicles, demand of oil will also get
decreased. lithium generally has a huge advantage over oil as it can be recycled. On the other

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hand, oil cannot be recycled. The prices of lithium as well as the electronic vehicles generally
gets influenced by the price of the oil fluctuations.
When the lithium will be available in the future, demand for oil will go on decreasing since it
ill be acting as the substitute to oil.

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Reference list
The Economist. 2018. Australia is the new frontier for battery minerals. [online] Available
at: https://www.economist.com/business/2017/11/25/australia-is-the-new-frontier-for-battery-
minerals
Leni, B. 2018. The lithium supply and demand story | MINING.com. [online] MINING.com.
Available at: http://www.mining.com/web/lithium-supply-demand-story/