Lithium demand has doubled over the past decade and is expected to double over again by 2020.
Review of the lithium oligopolies' production capacity, location and recent investment in production expansion.
A possible low cost producer backed by Toyota could join the lithium oligopoly.
With the volatile global markets and gloomy headlines, it is easy to lose track of the strong underlying fundamentals at play in the lithium sector. Unlike many other established commodities that have mature but cyclical end markets the use of lithium as more than a niche commodity is an emerging phenomenon. While demand has not been completely immune to macro economic trends, it has been rather resilient. Lithium demand has doubled over the past decade and is expected to double over again by 2020. What is primarily driving demand currently is the rapid adaption of Lithium Ion batteries in everyday consumer and hardware applications along with the uptake in new applications such as stationary energy storage and the widespread uptake of hybrid and electric vehicles such as those produced by Tesla Motors (TSLA). On the heels of these trends, there have been a flood of new investments, acquisitions, mergers, and price increases within the lithium production industry.
The top lithium producers, which are an oligopoly in the market have recently further consolidated the industry. This was accomplished in 2012 when Chinese lithium-giant Chengdu Tianqi acquired 100% of Talison Lithium Ltd., which owns and operates the Greenbushes hard-rock spodumene mine in Australia. The deal was an all cash transaction valued at $850 million. In 2013, Rockwood Holdings Inc. said that it would acquire a 49% stake in Talison from Chengdu. Collectively, today the lithium oligopoly accounts for almost 95 percent of global lithium supply including Soc. Quimica & Minera de Chile SA (NYSE:SQM), Rockwood Holdings Inc. (NYSE:ROC) and FMC Corp. (NYSE:FMC).
With little low cost "Green Field" lithium production coming online the investment focus will be on these key large lithium producers. Here is an introduction to each company, production capacity and location:
Soc. Quimica & Minera de Chile SA, Rockwood Holdings Inc., FMC,
FMC Corporation is a diversified chemicals company with strong competitive positions in agricultural, industrial and consumer markets. Since 1998, FMC's lithium division has owned and operated its facility at the Salar del Hombre Muerto, an Argentine salar. Initially designed to produce about 12,000 t/yr of lithium carbonate and about 5,500 t/yr of lithium chloride, FMC's lithium chloride production has been as high as 8,800 t. FMC's lithium carbonate production capacity was 17,000 t/yr in 2010, and in 2011, FMC Lithium began construction of a 30 percent capacity expansion which is now completed. FMC's annual lithium carbonate equivalent production can now exceed 22,000 t/yr. FMC is moving aggressively to extract the full value of its lithium division by spinning off its mineral business into a separate publicly listed company, "FMC Minerals." FMC Minerals, will be comprised of FMC Corporation's Alkali Chemicals and Lithium businesses
Sociedad Quimica y Minera de Chile SA is a Chile-based company engaged in the production of specialty plant nutrients and chemicals commodities. The Company's activities are structured in six business units including their lithium division. The lithium division owns and operates the Salar de Atacama, which is the world's largest lithium brine mine operated. In 2008, SQM's annual capacity of lithium carbonate production at the Salar de Atacama was expanded to 40,000 t/yr of lithium carbonate equivalent. Sociedad Quimica y Minera produces lithium carbonate for use in "batteries, frits for the ceramic and enamel industries, heat-resistant glass, primary aluminum, lithium bromine for use in air conditioner equipment, and continuous casting powder for steel extrusion, pharmaceuticals, and lithium derivatives."
Rockwood Holdings Inc., a leading global inorganic specialty chemicals and advanced materials company in 2012 announced a major expansion to double lithium production capacity. The company has invested $140 million in a new lithium carbonate production plant in Chile along with a $75 million investment to expand its lithium operation in the United States. These efforts would increase total annual production capacity to 50,000 t/yr of lithium carbonate equivalent, which was completed in 2013.
Upcoming Lithium Producer Backed By Toyota
One challenger to the oligopoly is Orocobre Limited (OTCPK:OROCF) an Australian-based industrial minerals company that has established a presence in the Puna region of northern Argentina. Orocobre is presently constructing and operating a portfolio of lithium, potash, and boron projects and facilities, with a core focus on the development of its flagship Salar de Olaroz lithium property. Salar de Olaroz is expected to enter production in August 2014 producing approximately 17,500 tonnes of low-cost, battery-grade lithium carbonate equivalent annually. The lithium carbonate produced at the Olaroz property is expected to end up in lithium-ion batteries that will power next-generation automobile. In 2012, Toyota Tsusho Corporation (OTC:TYHOF) entered a definitive shareholders' agreement with Orocobre on the Olaroz Project, which gave Toyota Tsusho a 25% interest. Toyota Tsusho, which is one of Japan's leading global trading houses, is 22% owned by Toyota Motor Corporation (NYSE:TM) and 11% owned by Toyota Industries (OTCPK:TYIDY).
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