Benchmark Intelligence Lithium Research, page-33

I'll start with your comment - If the converters were the real bottleneck, then I would expect the prices of the converted product to be rising not falling - I think you are looking at it up side down, in that the cell makers can't make cells without the chems, and the chem conversion capacity has not keep up with demand. Now that the raw material supply response has come, and the converter is not ready, that is creating an oversupply of SC6 at the converter level, which is weighing on prices, further sqeezing the converter margins. If the conversion capacity was there, one would think the converter would be snapping up all the tonnes they could get at these prices, yet again, if the conversion capacity was there, prices would be higher.

It's pent up demand that the converter is unable to take advantage of, missed opportunity to feed downstream righ now, but will hold up dowstream until they are ready, and if that persists for longer than expected, you will start to see cathode and cell makers slow their capacity expansions.

The question to ask is, why the lack of converter capacity?

China LCE prices went from US$6k pt in 2015 the $25k pt in January 2018, and there was panic buying at those elevated prices in 2017 and into 2018. It takes 9 to 12 months for the raw material to pass through the qualification period, and the raw material feed for those chems going into battery cells over the past 12 months was bought at those crazy/panic prices.

The cell makers would have long term contracts with cathode makers followed by the converters. So, the converters margins are being squeezed, particulary if they are still working through the product bought at the 2017/18 crazy prices.

For example, Ganfeng's reported a 48% y-o-y decline in profits for 6 month period to Dec 2018. So that is a very good indication that they weren't able to pass all of those high cost from 2017/18 raw materials onto the cathode/cell maker. Also, Ganfeng was looking to raise $800 mill with their HKSE IPO earlier this year, however, they only raised $440 mill, and $250 mill of same has been invested directly into mines (LAC, BCN & PLS). Therefore, funds spent of ramping conversion capacity, probably not as high as originally planned.

For the tier 2 & 3 converters, its reasonable to assume that alot of their capital was spent on high price raw materials during 2017/18, hense further expansion delays. It's also interesting to note that there hasn't been much talk about cell prices falling this year, thus far, which indicates said high material prices still working its way through the supply chain.

You would expect the raw materials bought at lower prices in the past 6 to 9 months will start finding its way into the cells for the coming 12 months, thus we should see cell prices start to decline again over the coming year.

Just because someone wrote something in a report - Well Oz that's disappointing, what can I say.............