Short Term Trading Week Starting: 15 Jan, page-300

To understand near term lithium supply/demand issues I think this section of the article is worth a closer look (bolding added):


Traditionally sold to ceramics and glass manufacturers, spodumene is increasingly being beneficiated into lithium hydroxide or lithium carbonate for use in batteries, and Mr Baylis said those beneficiation plants were currently the bottleneck.

"There is a hell of a lot of mined product floating around which is yet to have been converted into finished product, and the issue is going forward that is only going to increase because ... so an oversupply situation in 2017 is going to increase even further in 2018 and 2019," he said.

"The levels of demand growth to support the mine capacity being built will come, but it is not going to come in 2018 and 2019, it is going to come in three to five years time, so the question is can these operations maintain production if they can't sell a significant proportion of capacity?"

Mr Baylis said Australian miners would be somewhat protected by the fact that spodumene was typically priced with reference to the beneficiated product, which remains in tight supply.


What does this mean? The new mine capacity coming on line will increase the supply of spodumene concentrate. This has to go to a refiner (beneficiation plant) to turn it into lithium chemicals (lithium carbonate and lithium hydroxide). The lithium chemicals are sold to the battery makers, who then supply the EV manufacturers.

In the near term the existing refinery plants will be run up to 100% utilisation, operating 24/7 to meet demand from the battery makers. Beyond that, in order to satisfy rising demand for lithium chemicals by the battery makers, there will need to be more capex to enlarge existing refinery plants and build new ones, all of which of course takes time.

This is the part of the equation that we, as investors on the ASX, don't understand very well because these refinery plants are owned and operated by off-shore interests.

Let's assume that EV demand rises as predicted. If the refiners have not been building up capacity quickly enough, one consequence will be tightening of supply of lithium chemicals which will push up prices of lithium carbonate and lithium hydroxide.

Likewise, if the supplies of spodumene concentrate rise faster than refiner capacity, then you can expect a temporary glut of spodumene concentrate supply and a fall in spodumene concentrate prices.

That means spodumene concentrate prices could soon decouple and start to fall relative to lithium chemical prices which will keep going up (in the near term at least until refiner capacity rises to absorb more spodumene).

Whereas a shortfall in refiner capacity will hurt hard rock miners, it will benefit the brine operations because they produce lithium carbonate directly. This cushions them from the refiner bottleneck to a large extent, but not completely, because there might be still be some extra processing needed to increase purity of their carbonate or convert it to hydroxide.

If the refiner bottleneck is real, the beneficiaries will be the brine producers. ORE will be in the box seat because it is already producing large amounts of lithium carbonate. It is also pushing further up the value chain with advanced plans to build its own lithium hydroxide plant in Japan. AGY looks promising but won't shipping product for some time yet.

Another beneficiary could be LPD because its L-Max process can produce lithium carbonate directly from alternate lithium ores (lepidolite). This again largely avoids the refiner bottleneck, and also produces valuable co-products such as potash and silica. The downside is that L-Max plants are yet to be built so there is is no time advantage compared to building new spodumene refiner plants.