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Demand ready to take off, page-3

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    How investors can get in on the lithium rush
    http://www.copyright link/content/dam/images/g/o/7/7/b/j/image.related.afrArticleLead.620x350.gp7ngk.png/1464651701177.jpg
    Lithium-ion batteries are used in electric cars, such as those manufactured by Tesla Motors. Justin Prichard
    by Tess Ingram
    Unless you have been living under a heavy, lithium-bearing rock you would be aware that investor interest in the lively sector has been super-charged over the past 12 months.
    As the name suggests, lithium is a key ingredient in lithium-ion batteries used in electric vehicles and energy-storage systems which are expected to become more prevalent over the next decade.
    On the back of bullish analyst demand projections and keen investor interest, tens of local players have joined the hunt for lithium, including Andrew Forrest-backed nickel miner Poseidon Nickel and resurrected iron ore miner Atlas Iron.
    Before digging around for the best stock picks, here are five positives and negatives about the burgeoning sector to keep in mind.

    Small market, high excitement

    According to Citi, about 170,000 tonnes of lithium carbonate equivalent was produced in the relatively small global lithium market in 2015, with 83 per cent of that supply from four producers - Albemarle, SQM, FMC and Sichuan Tianqi.
    The market share these miners have amassed is expected to shift dramatically over the next few years as new entrants respond to projected demand growth, particularly in Australia.
    These dynamics, and soaring lithium prices, are an enticing bright spot for investors in an otherwise downtrodden resources sector.


    The eighth annual Lithium Supply and Markets conference was held in Las Vegas last week and Citi said the conference appeared "sold out with a high level of interest from buyers, sellers, traders as well as financial investors".
    "There is tremendous amount of enthusiasm about the topic given demand from electric vehicles and the rapid price rise in China," Citi analyst P.J. Juvekar wrote in a research note.
    Electric vehicles driving demand

    Elon Musk's Tesla Motors has become synonymous with discussions about electric vehicles but the relatively new technology is also making strides in China.

    The Chinese government has a target of putting 5 million "new energy" vehicles (mostly electric) on its roads by the end of 2020.
    Chinese electric automaker BYD has a goal of making 70,000 to 90,000 electric vehicles by 2017.
    Citi analysts said earlier this month the rapid adoption of electric vehicles was "far more visible in China".
    "Chinese domestic electric vehicle production soared 280 per cent year-on-year with buses accounting for 67 per cent of lithium carbonate consumption within the electric vehicle segment," the analysts said.

    "Hefty government subsidies more than covered the manufacturing cost of electric vehicle buses. While momentum may last through 2016, our China auto team expects electric vehicle sales to decelerate significantly as subsidies are cut by 20 per cent in CY17."
    However, Tesla is also putting its pedal to the metal, pushing forward a 500,000 annual vehicle production target by two years to 2018.
    West Australian lithium hopeful Galaxy Resources chairman Martin Rowley said the company had received enquiries from a number of car companies working to lock down long term contracts across the lithium-ion battery supply chain.
    "There is a sense of fear in the car companies now about this electrification getting away from them," Mr Rowley said.

    "What the car companies are most scared of is shortages and the spike in prices."
    Demand ready to take off

    In an extensive research note released earlier this month called 'Lithium 101' Deutsche Bank said it expects global battery consumption to increase by five times over the next decade, "placing pressure on the battery supply chain and lithium market".
    Lithium demand is expected to increase from 181,000 tonnes lithium carbonate equivalent in 2015 to 535,000 tonnes by 2025 as a result. Batteries, which accounted for about 40 per cent of that demand in 2015, are expected to account for 70 per cent by 2025.

    Some estimates are slightly more conservative. Global Lithium LLC president Joe Lowry, a recognised lithium expert, told Fairfax Media on Monday he expects global demand for lithium carbonate equivalent to rise to between 280,000 and 285,000 tonnes by 2020.
    In Vegas last week for the conference, he was buoyed by consumption projections from Panasonic, Tesla's battery partner.
    "We had a meeting with Panasonic which gave us their projections for the next five years and in 2020 Panasonic is saying they will do 52,000 metric tonnes of lithium carbonate equivalent," Mr Lowry said.
    "That is about what the whole industry took last year and the beauty of it is it is not all Tesla. Tesla is a little less than half of it. Everyone we are talking to is putting those kind of numbers out there."
    Plenty of unlikely hopefuls

    Lithium may be a small market but it is not rare.
    "Most major commodities generally have somewhere between 15 and 100 years of global reserves based on 2015 supply; however, global lithium reserves sit at 594 times 2015 global output," Deutsche said.
    As such, it is not hard for explorers to commence lithium exploration programs. As at the end of last week, 63 ASX-listed stocks were progressing lithium projects or had mentioned lithium exploration plans, according to PAC Partners analyst Andrew Shearer, up from an estimated 35 in April.

    Some of the best known names in the list are miners of other commodities, including Atlas Iron, Western Areas, Poseidon Nickel and Kidman Resources, exploring for lithium-bearing rocks on their ground but they are more likely to offload or partner in a promising lithium project than reinvent themselves as a lithium miner.
    Mr Lowry said while demand for lithium was expected to increase considerably over the next decade, many of the projects wouldn't transpire.
    "I think there are about 35 to 40 lithium projects [globally]... and I don't think 75 per cent of them will ever see the light of day," Mr Lowry said.
    "The world doesn't need 25 lithium producers."
    Some bright sparks in supply mix

    Mr Lowry, who has been working in lithium since the 1990s, said two years ago projections had the market in balance but delays, technical issues and financial problems curbed supply growth.
    "When I was talking about this in 2014 it looked like the market would be in relative balance… there was supposed to 80,000 tonnes of production coming online between 2011 and 2015," he said. "Of that 80,000 tonnes, 18,000 happened."
    Supply has not responded fast enough to demand and recent price hikes have incentivised new projects to enter the market.

    Lithium's main sources are brines and rock minerals. Spodumene, a hard rock lithium-bearing mineral, is mined and processed to extract lithium in a process that can be commenced faster than brine but is more costly to operate.
    The alternative, extracting lithium-rich brine concentrate from beneath salt lakes, predominantly occurs in South America and is a more capital-intensive process, slower to respond to market conditions but is generally lower cost.
    A number of Australian players are among the best-positioned to meet demand growth among a string of hopefuls.
    Orocobre is commissioning its brine-based lithium operation Olaroz in South America, the first greenfields lithium brine operation in 20 years, but technical issues have made it slow to reach full production. Neometals, Galaxy Resources and Pilbara Minerals are all developing hard-rock lithium deposits in Western Australia.
    Galaxy Resources announced a merger with its joint venture partner at its Mt Cattlin project on Monday which it says will create a "leading diversified global lithium company".
    Both Mt Cattlin and Neometal's Mt Marion project are expected to commence production before the end of the year.
    Longer-term, Deutsche expects there to be "a substantial response from the incumbent major brine producers, as well as greenfields brine projects, to market conditions" over the next decade. Citi has pegged its long term price forecast at $US6000 a tonne where it expects the cash operating cost of the highest cost, marginal hard rock producer to settle.


    Read more: http://www.copyright link/business/...he-lithium-rush-20160530-gp7ngk#ixzz4ACDJymBW
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