From the AFR this morning. How long can Goldman etc. continue their unfound rhetoric? Great to see our project on track with plenty of cash in the bank.
Lithium sector is struggling to solve its big problem. Bullish new forecasts for lithium demand have coincided with setbacks to new supply projects. That’s ultimately good for prices, but not for the electric vehicle sector’s big ambitions.
It’s unlikely that many Australian investors are following the recent travels of chancellor Olaf Scholz. But his trip to South America in recent days underscores a new front in the global race for arguably the world’s hottest commodity: lithium.Scholz signed an agreement with Argentina that is designed to help German industry secure lithium supplies from the South American giant. On Sunday, the chancellor was in Chile, the world’s second-largest supplier of lithium after Australia, seeking a similar deal.Surging electric vehicle production will boost lithium demand, according to one of the sector’s giants.
Currently, the bulk of the world’s lithium chemicals are scooped up by China’s battery manufacturing sector. But Germany – home to car giants such as VW, which wants to invest $80 billion in electric vehicles between now and 2026 – needs a slice of that action.More broadly, Scholz’s trip again highlights questions over the size of the gap between lithium supply and demand, and how and when it will get filled. The surge in ASX-listed lithium stocks since the start of the year – Pilbara Minerals is up 35 per cent year to date, Mineral Resources is up 23 per cent and Liontown Resources is up 32 per cent – speaks in part to a return to the global burst of speculative bullishness, and in part to a new data suggesting lithium demand over the next decade could be even stronger than expected.
Last week, US-based lithium giant Albemarle lifted its forecasts for lithium demand by about 15 per cent, putting demand at 1.8 million tonnes and demand in 2025 and at 3.7 million tonnes in 2030, up from 0.8 million tonnes in 2022.The biggest swing factor: electric vehicles. The Biden administration’s Inflation Reduction Act, which includes big incentives for renewable energy including batteries, has contributed to Albemarle’s new demand estimate. But the biggest swing factor is sharply rising electric vehicle production, which Albemarle expects will leap from 11.2 million units in 2022 to 15.7 million in 2023, and to 46.9 million by 2030.(Interestingly, Citi believes demand in Australia for EVs is set to grow in 2023 thanks to the federal government’s new Electric Car Discount, which the bank believes has the potential to add as much as 11 per cent upside to novated leasing volumes, given the spike of EV-related inquiries fleet managers have reported.)Albemarle’s new lithium demand estimate is seen as bullish by some commentators.
Respected research house Benchmark Intelligence has a base case for demand of 2.4 million tonnes in 2030.But chief executive Simon Moores points out that even at this more modest level of demand, supply is likely to remain short, given Benchmark’s base case for supply in 2030 is 2.1 million tonnes.Even that 12.5 per cent gap between supply and demand is the equivalent of at least six lithium mines, and 50 per cent the size of the entire industry in 2022. But Moore describes the 54 per cent gap between Benchmark’s base case for supply and Albemarle’s bullish view of demand as “the difference between automotive EV dreams and the reality of what the industry can likely achieve”.
Indeed, the difficulties in closing the supply gap have been highlighted and appear to be growing. While analysts expect supply of lithium to increase by between 20 per cent and 40 per cent in 2023, miners are already struggling to meet their production plans. Macquarie says that over the last two months, four ASX-listed lithium companies have “announced setbacks to their respective projects, reflected in either a higher capital budget or a delay of commissioning”.Liontown Resources has increased the forecast capital budget for its Kathleen Valley by 64 per cent, with Macquarie warning “scheduling risk remains”. In December, Pilbara Minerals increased the budget for one of its expansion projects by 36 per cent. Allkem recently announced a delay with its Sal De Vida. And last week, Mineral Resources announced delays to the expansion of its Mount Marion project, which has been pushed back six months.
Of course, the delays at Mineral Resources haven’t stopped the company’s shares from testing record levels. And at an individual company level, Macquaire sees a silver lining to these supply challenges. “Supply response will lag demand, resulting in a market deficit and elevated lithium prices. In addition, we believe the capex upgrades could also shift the cost curve upward, translating to higher lithium prices in the long term.”But for the EV industry, and the world’s emissions reduction goals, the challenges in closing this supply gap are not going away. As Moores says, it won’t be easy taking the lithium and EV sectors from start-up mode to scale-up mode.
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