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Ann: JP Morgan Investor Day - Presentation, page-18

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Haplo

17,212 Posts.

3864

10/02/19

16:22

Post #: 37390737
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Originally posted by Haplo ↑

Certainly, don't disagree but KDR shares have been trending back up thanks in part to shorts closing their positions. Question is, of course, is why are they closing their positions if the outlook is still negative for lithium equities.

Sentiment For Lithium Stocks Still Negative

Let’s look at it a bit closer: Chilean lithium producer SQM originally wanted to increase its annual production from 48,000 to 70,000 tonnes of lithium carbonate equivalent (LCE). However, the results for the first nine months of 2018 show that this will not happen, at least in the short term. Sales of lithium and derivatives declined from 36,500 to 30,400 metric tonnes – a decrease of 16 percent. According to the company, the reasons were delays in the planned expansion of production capacities and low inventories. At least the results for the fourth quarter had been announced to be significantly better. These will be announced at the end of February.

The situation is hardly any better for another large lithium company. The American raw material producer, Albemarle, increased its sales revenue from lithium by just 0.6 percent in the third quarter. The mini-plus was exclusively due to price increases. Production, on the other hand, declined as at SQM. This does not mean that the worldwide output of lithium equivalents will not increase in the future. However, the expansion of existing production facilities and the commissioning of new ones is progressing much more slowly than industry forecasts.

Production only rising slowly

In total, lithium production in South America is likely to have increased by less than 10,000 tonnes in the past year. SQM alone wanted to grow by more than twice as much. In addition, there are production expansions, especially by Chinese companies. As preliminary figures from the China Lithium Association indicate, production here could have increased by around 35,000 tonnes. According to expert estimates, the bottom line is that global supply increased by around 20 percent in 2018. For comparison: In China alone, around 1.3 million cars with electric motors were sold in 2018. This means growth of 64 percent in the world’s largest vehicle market. In the USA, the world’s second-largest sales market, new registrations rose last year by 84 percent to just under 0.4 million vehicles. Around two thirds of all cars with electric motors sold in the USA are purely electric cars.

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Just a follow up to yesterday's post. For those of you who have not seen this article.

SQM puts foot on Pilbara lithium lot

SQM clearly wishes to extend its footprint in WA hard rock. The biggest and easiest way to achieve as far as I'm concerned is to simply swallow KDR.

SQM got a bargain by moving early to purchase 50% of Mt Holland when you compare it to ALB's purchase of Wodgina. So I'm sure SQM shareholders won't mind all that much is the remaining 50% is paid at the market price considering the overall savings they have achieved compared to their competition.

Add to that, SQM has a new chief at the helm. The thing is when new appointments like this are made - the new blood usually likes to prove themselves as soon as possible to the board and shareholders, that they made the right choice. The best way to achieve this is to close a major deal that will add to the future revenue of the company and help diversify its commodity supply.

That's why I'm staying the course with KDR. I'm thinking the shorts are also thinking along those lines as well.

Haplo

Last edited by Haplo: 10/02/19

KDR Price at posting: $1.39 Sentiment: Buy Disclosure: Held
38 Upvote

10 Great analysis

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