Lithium Trends 2017 – Investment News Network
Lithium trends Q1: Supply concerns increase
For
the past three years, Tesla (NASDAQ:TSLA)
has brought much excitement to the lithium space, and 2017 wasn’t an
exception.
In
January, the company started production at its Nevada facility, which
is expected to produce 35 GWh per year of lithium-ion battery cells
in 2018. During Q1, the Elon Musk-led company also announced
plans to open two to three EV gigafactories by the end of 2017,
boosting excitement among investors.
But
as many analysts say, Tesla is just one story, and this year many
carmakers started to outline plans to win a space in the electric car
race. In fact, in Q1, analysts at UBS (NYSE:UBS)
raised their forecast for global EV sales in 2021 to 3.1 million
units from 2.5 million, and to 14.2 million units in 2025.
This
surging demand for EVs is expected to push demand for
lithium-ion batteries above 400 GWh by 2025, Benchmark Mineral
Intelligence says. That means supply of lithium, a key component in
the batteries, will need to
reach
400,000
to 500,000 tonnes by the same year.
“There’s
much more consensus on demand; we’re no longer even debating
demand. We’re shifting to supply and whether, as an industry, we
can deliver,” John Kanellitsas, vice-chairman of Lithium Americas
(TSX:LAC),
said
earlier in 2017.
Most
analysts agree that the world is not short on lithium. The “lithium
triangle,” which overlays Argentina, Bolivia and Chile, holds 54
percent of the
world’s lithium resources, which currently sit at a total of 14
million MT. But while reserves are large, bringing projects into
the lithium market is not always easy; after all, it can take years
for a new mine to be producing at full speed.
In
Q1, China continued to be a key player in the EV space, in part
due to environmental pressure. The government is pushing for
all-electric battery cars and plug-in hybrids to account for at least
one-fifth of its vehicle sales by 2025. China already produces 55
percent of lithium-ion batteries globally, and its share is forecast
to grow to 65 percent, according
to Bloomberg New Energy Finance.
“This
is about industrial policy. The Chinese government sees lithium-ion
batteries as a hugely important industry in the 2020s and beyond,”
said Bloomberg New Energy Finance analyst Colin McKerracher.
In
Q2, the market was flooded with news stories about electric cars and
the huge amount of lithium demand that could hit the market
in the next few years.
“The
success of EVs will depend on our ability to deliver lithium to the
world,” Lithium Americas CTO David Deak said at this year’s
Benchmark
World Tour stop in Toronto, adding that “the lithium market
must grow by a factor of 20 for a world that runs on EVs.”
In
fact, analysts believe that despite the world’s large lithium
reserves there is not enough supply in the pipeline to satisfy the
expected demand by 2025. “It
is our expectation that the lithium industry will struggle to keep up
with demand between now and 2021. [We don’t expect an] oversupply
[in the market],” said Benchmark Managing Director Simon Moores.
Looking
over to the major news stories in Q2, Argentina’s new mining deal,
which could see its lithium carbonate output rise substantially
by 2022, was one that impacted the market. If the new mining act
brings the expected investments, the country could triple production
in the next five years.
Lithium
expert Joe
Lowry said earlier
this year that the country could develop two more world-class assets
within the next four or five years. “Given the number of producers,
and the relative ability to bring new production online, I believe
that by 2021 or 2022, Argentina will be outproducing Chile,” he
said.
Another
big news story that hit the market in the second quarter was worries
that Tesla might not be able to deliver its Model 3 on time due to a
battery
shortfall.
Moving
into Q3, pricing in China was estimated to go up rather than down —
back into the upper teens for lithium carbonate and slightly higher
for hydroxide, both of which are considered battery-grade lithium,
expert Lowry said at the time. “My
“new normal” prices are $12-14/kg range for carbonate pricing and
$18-22/kg for hydroxide,” he said in his Lithium
Halftime report.
Similarly,
Benchmark analysts said that the average global price of lithium
carbonate rose by 9 percent in Q2, “led by pressures into the Asian
battery sector in particular.”
Lithium trends Q3: Automakers outline EV plans
At
the beginning of the second half of the year, announcements from
major governments hit the lithium market. France, the UK and
potentially China all outlined plans to ban fossil fuel cars by 2040.
Other countries have also set electric car sales targets or have
hinted at bans on ICE cars in the coming years; such
countries include Norway, Germany and the Netherlands.
VOLV
Partnerships
between major carmakers and Chinese firms were also a major trend
during the quarter, with Renault-Nissan and Ford fighting for a place
in the surging EV market.
In
the third quarter, sales of EV and plug-in hybrid batteries
exceeded 287,000 units, up 63 percent compared to the same period
last year on the back of strong Chinese demand. That number is
expected to increase significantly as the electric car revolution
continues to unfold.
Another
major news story in Q3 was producers’
long-term contract strategies. As mentioned, processing lithium
for use in batteries can be challenging; as a result, producers are
on the hunt for ways to ensure they have enough funding to meet
future demand. Top lithium producers such as SQM (NYSE:SQM)
and FMC (NYSE:FMC) are
reportedly betting on long-term agreements to fund expansions.
In
Q3, the London Metal Exchange also started to consider introducing a
lithium
contract
to
give investors exposure to growth in EVs. But expert Lowry commented
at the time that even though he expects a lithium contract to be
launched at some point, it is likely a few years off.
“[The]
lithium market is still too small for the LME to implement a contract
but there is no question that it is desired from by major
purchasers,” he said in August.
In
September, Australia-listed Kidman Resources (ASX:KDR)
and Chile’s SQM agreed to form a joint venture to develop the
Mount Holland lithium project. This type of alliance could be
critical for lithium supply, Lowry
explained in
an interview earlier this year.
Later
in the quarter, Volkswagen (FWB:VOW) said
it was looking to invest $60 billion into electric car
content, including batteries, and was aiming to sign supply
deals for raw materials by the end of the year.
Before
the end of Q3, Australian Pilbara Minerals (ASX:PLS)
signed
a lithium offtake deal with Chinese car manufacturer Great Wall
Motor (HKEX:2333)
to further develop its flagship Pilgangoora lithium-tantalum
project. The deal was seen as a milestone in the space, as it was the
first investment deal by an automaker into an upstream supplier of
lithium raw materials. Until now, offtake agreements have in general
been with chemical manufacturers and traders rather than carmakers.
After
the news, lithium expert Chris Berry said security of supply is
still under appreciated. “[It’s] going to be interesting to see
how/if other automakers move to secure raw material access,” he
added.
Lithium trends Q4: Will lithium jump to mainstream?
As
the year comes to an end, many market participants believe 2017 has
been the year of the electric car. But as carmakers realize how much
supply is required, investments will be needed to ensure that lithium
jumps from a niche market to mainstream, Moores
said in an October interview.
Looking at
major Q4 news stories, several companies started to show interest in
a stake in SQM. The company has reportedly attracted interest from
mining giant Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO),
China’s GSR Capital, Sinochem International (SHA:600500),
battery firm Ningbo Shanshan (SHA:600884)
and Tianqi Lithium Industries (SZSE:002466).
SQM
is currently in a legal dispute over its lithium lease with Corfo,
Chile’s state-run development agency; it may not be resolved until
the end of 2018.
Another
major news story in Q4 came from LG Chem (KRX:051910),
which outlined plans to invest $1.63 billion to open the biggest
lithium-ion battery factory in Europe. China currently leads in the
production of EV batteries, but car manufacturers have been
calling for Europe to start producing the batteries in order to
remain competitive.
Benchmark
is now tracking 26 battery cell plants that are expected to start
production or expand capacity by 2022. In 2014, there were only three
battery megafactories in the pipeline. “The
combined planned capacity of these plants is 344.5GWh. To put that
into perspective total lithium ion cell demand in 2017 is estimated
at 100GWh,” but the industry needs to scale up, the firm said.
In
fact, Cairn Energy Research estimates that lithium-ion battery demand
will reach 750 GWh by 2026. And according to Benchmark, the
increasing demand for raw materials key in batteries will see the
need for lithium raise from 75,000 tonnes in 2016 to 550,000 tonnes
by that time.
Interested
in knowing what else happened in the lithium space this year? Check
out our top
lithium stories of 2017. And keep an eye out for our upcoming
lithium outlook from analysts and companies.