- Lithium carbonate producers deploy capital into expanding mineral production capacity as the industry expects demand to grow 9.7% in the next few years.
- Historical growth for lithium demand has come from consumer mobile devices but this is shifting to stationary energy storage markets and electric vehicles.
- Review of multiple companies that are driving lithium battery demand.
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. Increase in lithium demand is rising due to the rapid adoption of Li-ion batteries in everyday consumer mobile devices, the electrification of the automobile and the emerging market for stationary energy storage applications. Roskill has estimated that total global demand of lithium in 2012 reached 150,000t LCE with a value estimated at around $2.2Billion. Lithium demand increased at an average compound annual growth rate of 6.7% beginning in 2000. With all sorts of new energy hungry mobile devices hitting the market, Roskill is bullish on lithium going forward. Future demand is projected by Roskill to grow at an annual rate of 9.7% until 2017, then gaining further momentum as mass adoption of electric and hybrid vehicles comes to fruition.
Demand for lithium products in most sectors has seen increases over the past decade, such as in the mobile phone, laptop and tablet PC markets, but these rechargeable batteries only consume a small amount of lithium when compared to other applications. Larger format rechargeable batteries, such as those integrated into electric and hybrid vehicles, consume a much greater volume of lithium and therefore any increase in alternative vehicle sales would dramatically drive demand for rechargeable lithium ion batteries. This in turn would significantly propel demand for lithium carbonate.
Lithium Producers Invest in Expanding Production Capacity Ahead of Increase in Demand
In parallel with the growth that the industry has experienced, coupled with the bullish forecasts for lithium carbonate, existing lithium producers have deployed capital to either increase production capacity, acquire other existing producers or a combination of both. The top lithium producers, which are an oligopoly in the market, include Soc. Quimica & Minera de Chile SA (NYSE:SQM), Rockwood Holdings Inc. (NYSE:ROC) and FMC Corp. (NYSE:FMC). Further, a number of projects have begun development around the world, including areas in South America, USA, Canada and Europe, but these projects are far from commercial production and I expect only a small number of these projects to come online before 2020, if ever. This will include Orocobre Limited's (OTCPK:OROCF) flagship Salar de Olaroz lithium property. Salar de Olaroz is expected to enter production in August 2014, producing approximately 17,500 tons of low-cost, battery-grade lithium carbonate equivalent annually. With little low cost "Green Field" lithium production coming online, the investment focus will be on these key large lithium producers.
Lithium Stationary Battery Energy Storage Market Gains Traction
The market for lithium stationary battery energy storage holds tremendous potential to deliver a variety of benefits across the energy delivery value chain. Energy storage technologies, including rechargeable lithium ion batteries are considered a key component for the integration of high levels of renewable energy as part of energy infrastructure which will be deployed in future grids. Applications for stationary energy storage applications include load leveling, storing off peak electricity during periods of low demand for future consumption and a variety of standalone and hybrid micro grid systems. The implementation and adoption of renewable energy generation, including wind and solar has increased grid volatility due to intermittency in renewable energy generation. This intermittency is often seen in wind energy production when the wind is not blowing or in solar projects when clouds pass over the solar modules.
Japan is one nation that has committed to including lithium ion batteries as part of its smart grid infrastructure. This was accomplished when the nation introduced a program for lithium ion based stationary energy storage systems. In fact, the one year program became so popular in Japan that it reached its allocated subsidy funding well before the closing date in 2013. The popular program recently went under review and was reopened in March 2014, during which time Japan's Ministry of Economy, Trade, and Industry announced a budget of ¥10 billion (approximately US $100 million), which would once again offer to pay two-thirds of the purchase price for new stationary energy storage systems. The Japanese government quickly agreed on a maximum three-year subsidy program, worth over of ¥20 billion (approximately US $200 million), for the use of stationary lithium-ion battery energy storage systems starting in 2012.
NEC Corporation (OTC:NIPNF) is one of Japan's most active energy storage companies. In 2013, it established a production line with annual capacity of 20,000 residential energy storage systems. This followed its 2012 product release of a line of energy storage systems geared towards residential applications. Further, NEC produces electrodes for lithium ion batteries and battery cells for energy storage systems. Outside of the residential market, NEC is active in production and selling full integrated energy storage systems for commercial and utility scale projects around the world. In March 2014, NEC bought A123 Energy Solutions from China's Wanxiang.
The Emergence of the Electric and Hybrid Vehicle Market
The emergence of the electric and hybrid cars has driven significant innovation and investment in battery manufacturing capacity in the battery sector. Key industry announcements have emerged from industry leading companies such as Tesla Motor (NASDAQ:TSLA) and Toyota Motors Corporation (TM) and related Toyota Tsusho (South Sea) Corporation (OTC:TYHOY) have each made their own significant investments throughout the lithium supply chain.
Tesla Motor Inc. recently announced its planned "Giga Factory", which has created an overwhelming amount of interest in the energy storage space. The Giga Factory will be the largest battery-making facility in the world, producing, at its peak, 500,000 lithium-ion packs per year. It is possible that Tesla could deliver battery packs to other automotive companies and other applications including the stationary energy storage market. Tesla followed up the announcement with a $1.6 billion convertible debt offering and is looking to offer convertible debt notes to increase the funding. The Giga Factory, which will have a capital cost between $4-5 billion, is expected to begin construction in 2014 with production starting in 2017. The facility is expected to employ 6000 people in a 10 million square foot facility. Tesla expects that this new facility will reduce the cost of lithium ion batteries by about 30%. As Tesla begins to move forward with the Giga Factory, a number of direct investment opportunities have arisen primarily in the battery and lithium supply chain.
New Growth for Mobile Phones Growing in Emerging and Underdeveloped Nations
According to an eMarketer report, it's expected that 4.55 billion people worldwide will use a mobile phone in 2014. Mobile adoption is slowing, but new users in the developing regions of Asia-Pacific, the Middle East, and Africa will drive further increases. Between 2013 and 2017, mobile phone penetration will rise from 61.1% to 69.4% of the global population.
Focusing on Apple Inc. (AAPL) who has emerged as a leader in the consumer electronics industry with its popular line of products, which include the iPhone, iPad, and iPod. However, Apple is facing increasingly tough competition from other global consumer electronic providers such as Amazon (AMZN) Google (GOOG) (NASDAQ:GOOGL), BlackBerry Ltd (BBRY), Samsung (OTC:SSNLF), Microsoft (MSFT) and LG (LPL), amongst others. The common theme is that the need for lithium is greater than ever and will continue to climb alongside the growth of the consumer mobile electronics market. In fact, as these handheld devices become increasingly energy-demanding, the need for lithium will be even greater.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.