Interesting reading......
New research suggests a price crash in global lithium markets is unlikely
SAM JACOBS
JAN 25, 2018
https://edge.alluremedia.com.au/uploads/*/2018/01/lithium-ion.jpgAttendees look at a Renovo Coupe production prototype. The zero-emission electric car is powered by a lithium-ion battery. (Photo by Ethan Miller/Getty Images)
The global lithium industry is subject to complex supply and demand factors, but prices are unlikely to crash in the near future.
That’s according to research from Benchmark Mineral Intelligence (BMI), which provides an index for lithium pricing.
Analysts Andrew Miller and Simon Moores aimed to clarify some of the competing forces in the market for lithium — the key component for batteries used in electric cars.
BMI maintains four separate indexes for global lithium prices across China, Asia, North America and Europe.
Prices in December showed significant variation – from $US22.6/kg in China to $US16/kg in Europe.
For their 2018 outlook, the analysts are forecasting a price “convergence rather than a crash”.
Fears of a global supply glut were exacerbated last week when lithium producer SQM
resolved a long-running dispute with the Chilean government to expand its mining operations.
That helped drive a selloff
in ASX-listed lithium miners, following a year of strong returns in 2017.
But Miller and Moores explained that the driving force of lithium prices in 2018 isn’t how much raw material — known as Spodumene — is being dug out of the ground. Of more importance is the capacity of Chinese refineries to convert it into battery-grade lithium carbonate equivalent (LCE).
“As we track the supply chain from spodumene to battery grade chemicals, the bottlenecks become apparent,” the pair said.
“Just selling to China is not the end of the story, it’s just the beginning. As spodumene players tie in conversion partnerships, its critically important to ask who is converting this material and if they can reach specification for battery makers.”
At a recent Bank of America Merril Lynch lithium conference, there were suggestions that China will expand its LCE conversion capacity to 180,000 tonnes per annum (tpa) in 2018 — up from 120,000 in the prior year.
However, “Benchmark Mineral Intelligence discounts a large proportion of this new capacity as hearsay and conjecture”, said Miller and Moores.
“Historically the installed nameplate capacity of many Chinese facilities has been much higher than their actual output levels.”
“The data points that Benchmark works from is 100,000 tpa of new conversion capacity in China by the end of 2019 at the earliest.”
On the demand-side, the analysts said all auto-manufacturers are now aware of the need to lock in lithium supply contracts.
And their bargaining position is being weakened as they ramp up production capacity for electric vehicles — the latest example being a $US11 billion investment by Ford to expand its fleet of electric and hybrid vehicles.
But the analysts said that direct involvement from the auto-industry is a secondary factor in determining the price of lithium.
In fact, the “real” market for lithium — which is driving the current price action — is based on supply and demand between producers and the refineries that produce battery-grade chemicals.
“Quite simply, to impact the battery grade lithium carbonate and lithium hydroxide prices that BMI assesses on a monthly basis, battery grade product has to be produced and sold to cathode and battery makers,” they said.
“Producing DSO or even spodumene concentrate and adding it to stockpiles is not creating new LCE supply.”
Therefore, “understanding the conversion capacity in China is key to understanding how much of these feedstock makes its way into batteries.”
“Only then will you see a price correction on the global price averages.”
(20min delay)