Joe Lowry has published another brilliant piece on the state of lithium industry, exploding demand and very sober outlook for the supply side. Joe brings more than twenty years of deep inside technical knowledge in this very opaque market place and knows almost all major lithium producers by "kicking all the tires" of their field operations. Lithium race is upon us and President Obama opens the new chapter for the sustainable clean economy. Where lithium will come from?
Joe Lowry provides a very sobering outlook for the lithium supply side for the next ten years. He estimates that demand will rise 150% from 160k T of LCE to over 400k T per year - I can even call it conservative in case if electric cars really will take off in the next few years. China is rapidly growing into the world largest market for electric cars matching its biggest auto-market size and state "War on Pollution". Chinese companies are controlling now 75% of lithium hydroxide production. Where all this lithium will come from? Joe is pointing out to the problems in the lithium sector with unproven technologies and junior miners without access to the capital to develop new projects. This is where International Lithium is standing out on its own. Ganfeng Lithium finances our J/V project developments in Ireland and Argentina and we have access to the latest technology from this leading lithium materials producer from China. Now our bulk sample from Mariana project in Argentina is being analysed for the potential lithium and fertiliser products by Ganfeng in China at its R&D facilities.
I find it quite symbolic that Oil Price has published this article by James Stafford. Our lithium story is getting on the investors' radar screens, the process is slow and masqueraded by the carnage in commodity sector. People and companies who are building their portfolios cannot imaging more opportune time: Elon Musk and Warren Buffett are making the broad market appeal for electric cars and solar energy, but lithium market itself is still full of smoke and mirrors. And now just wait for the official confirmation from Apple about electric iCar to spark all electric cars market and hedge funds start fishing upstream all supply chain. This is where Lithium comes into play as the strategic commodity, where security of supply is the most important now. The disparity in commodity and technology valuations creates great opportunities for those who can think long-term and cherry pick the best assets at the rock bottom valuations. Where to go: always do your DD and follow the smart money from industry insiders. I will provide links for your research and share all publicly available information about International Lithium and our strategic partner Ganfeng Lithium. Please do not hesitate to contact myself on any of the social media platforms or at International Lithium. We are here to make this rEVolution happen. Dump The Pump. Read more.
A Quick History of the Lithium Industry
The mines and processing plants that enabled the lithium industry were built near two small towns in North Carolina, a small city in western China and Siberia. These facilities were constructed after WWII as a result of the cold war need for lithium as part of each country's nuclear weapons program. Once the US stockpiled sufficient material, the American lithium industry had to look to commercial applications for survival. It was an uphill battle.
When I entered the industry in 1990, lithium was no longer dependent on the government but was a very limited market. Glass, aluminum and grease were the main uses. Non - rechargeable lithium batteries were an expensive niche product. The rechargeable lithium ion battery (LIB) was in development but not yet commercial.
The normal reaction when I told people my job was "in lithium" during the early 1990s was a rapid glazing over of the eyes. Occasionally I would meet a person with a manic depressive relative who appreciated the pharmaceutical use of lithium carbonate.
Lithium's transition from obscurity to ubiquity began when Sony commercialized the lithium-ion battery in the early 1990s. It was my good fortune to have responsibility for selling the lithium raw material that Sony, Panasonic, Toshiba and Sanyo chose to make their lithium ion cathode. The lithium carbonate selected was made from spodumene ore mined and processed by FMC in North Carolina. Rockwood, then Foote Mineral Company, was producing from brine in Chile but the spodumene based product was initially selected. FMC's dominant position in LIB raw material was short lived due to a botched transition from spodumene to brine based production.
SQM entered the market in the late 1990s but their low price strategy (SQM ultimately took carbonate pricing below $1,500/MT from $3,500/MT) caused the quality sensitive Japanese companies to be suspicious of their product. Ironically, FMC became a key customer of SQM via a soda ash to lithium carbonate toll. FMC briefly shutdown their new carbonate plant in Argentina in favor of lower cost sourcing from SQM.
SQM's initial market success was in the industrial area. It took them a few years to gain traction in LIB. During the 1990s and well into the next decade, China's production, for the most part, remained in China - exports went to low end industrial applications. Russia, despite having the ability to produce high quality product, is no longer a factor in the global market for resource, scale and cost reasons.
Over the past 25 years, lithium demand has grown about 4X to approximately 160K MT. In 2000, LCE demand for LIB was just over 2,000 MT. By 2014, it was ~30 times greater. In the next ten years, the use of LIB in transportation and the electrical grid will have a similar growth curve.
Demand Booms - Investment Lags
Despite rapid growth, the market for lithium is still tiny in comparison to other metals. To give some perspective, copper and aluminum production are in the millions of MT annually. Lithium production, in all chemical forms, is still less than 200 thousand MT. Global annual sales of basic lithium chemicals will not reach $2 billion for several years. If you prefer the comparison of lithium to other chemicals - the results are the same. Dow Chemical's 4th quarter 2014 sales alone were $14.4 billion. Despite the fact that a majority of the people on the planet have a lithium containing device, the lithium market is incredibly small. My point? No matter how profitable a potential lithium investment could be - because of the small industry scale it would be meaningless for most large corporations to invest unless they also have another business unit dependent on the supply of lithium raw materials.
Much of the world's lithium is in Chile and Argentina. The political and economic climate in both countries is, at least in the near term, a limiting factor on investment.
The poor track record of recent lithium projects is also a concern of potential investors. Canada Lithium and Galaxy are two names that come to mind. Fewer people know that since starting up their Argentina plant in the late 1990s, FMC has written off almost $200 million of capital investment at their various lithium sites. Orocobre is another question mark as they are still in a lengthy start-up process and could be another lithium casualty.
Albemarle is an exception to the recent reticence to invest in lithium. A relatively small chemical company, Albemarle "bet the farm" on the Rockwood acquisition. They paid a very high price to step into the number #1 position in the industry. Whether the investment has an acceptable long term rate of return is an open question. In any case, Albemarle/Rockwood is clearly the #1 lithium company in the world.
The supply scenario estimated in the chart below will require as much as $2 billion of investment for the bars on the chart to stay above the demand line.
On an almost daily basis, fledgling companies like Pure Energy, Nemaska, LAC and Western Lithium tout the bright future of lithium as they continue to seek funds for their projects. I agree with them - at least about the future of lithium. In the next ten years, the lithium market will grow like never before if, and only if, investments are made soon. Perhaps one of the small companies named above will produce commercially in the next decade. I doubt it.
The Private Equity world is awash in cash but continues to avoid investment in lithium. Their hesitation although disappointing is understandable. I have a harder time understanding the major companies participating in the LIB space like Panasonic, Samsung, LG, BASF and some others; who seem content to wait and see what happens with lithium capacity additions. Of course the biggest surprise is the behavior of Tesla who constantly expounds on the great future of lithium batteries while taking a "head in the sand" approach to the lack of investment in the raw material they will pay increasingly higher prices for. I am not suggesting any of these companies has to take 100% ownership in a lithium company but their lack of support in the form of providing even non binding POs, minority equity investments or, in limited situations, binding take or pay contracts may prove to be very short sighted in the long run. Even limited support would help new projects get financing or incent expansions by existing producers.
Hopefully a combination of expansions by existing producers in South America and China combined with the entry of one or two new players, not listed here, will fill the demand gap. Time will tell. The fact remains - you can't make a lithium battery without lithium…..."
Disclosure: I am/we are long ILHMF, TRRXF.