Found on Joe's twitter feed:
LITHIUM INVESTING
Joe Lowry Interview Part One: Lithium-ion Battery Demand and Production
Joe Lowry sheds light on how much lithium-ion battery production will grow and where its production will come from.
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Jocelyn Aspa • October 17, 2016
No doubt, the lithium-ion battery market has been a hot topic over the last couple of years, and it’s expected to make significant strides in the coming years.
A report from
Transparency Market Researchindicates that the market is projected to reach over $77 billion by 2024.
Joe Lowry, CEO of Global Lithium LLC, suggests that lithium-ion battery demand will grow significantly over the next four years.
Recently, the Investing News Network (INN) had the chance to catch up with Lowry, and discussed the following, in part one of our interview:
- how much lithium-ion battery demand will grow by 2020
- where the production will come from
- where the raw material will come from
Below is a transcript of our interview. It has been edited for clarity and brevity. Read on to see what Lowry had to say.
INN: In terms of the general market, do you still believe that the lithium-ion battery demand will grow to 100,000 metric tons by 2020?
JL: I recently have updated that number to 130,000 metric tons.
I believe in 2015 the total lithium market was approximately 163, 000 metric tons and will grow to about 182,000 metric tons in 2016. I only use lithium that was sold as a chemical. If someone uses ore in an end-use it’s not in my numbers. I presented the new numbers at a Benchmark Minerals event in Silicon Valley early this month.
The 130,000 metric tons for lithium-ion battery, includes use in all forms of cathode plus the lithium values going into electrolytes, etc. My lithium ion demand forecast actually cuts down the estimates of demand from cathode and battery producers substantially – which is something I have always done.
INN: Such a huge increase. Where do you see most of that production coming from?
JF: When you talk about a huge increase–if the Tesla gigafactory is successful–that’s approximately 28,000 metric tons of lithium hydroxide. And, as I often say, Tesla is (NASDAQ:
TSLA)
a story, it’s not
the story because how many electric vehicle (EV) manufacturers do you have in China? Short answer: probably too many. Currently, China in the EV world is kind of like the US was in the early 1900’s when there were more than 100 car companies and rationalization was needed.
Rationalization will ultimately happen in China but volume growth in EV is going to occur. More broadly, demand growth is going to come from electric transportation which is not just EV: it’s buses, it’s delivery vehicles, it’s scooters. I think we are getting to the moment when the electric transportation market is achieving critical mass. Energy Storage Systems (ESS) isn’t going to be a big part of the number to 2020. By 2025 I think it will be a very significant number.
INN: Where is the raw material going to come from?
JL: That’s the $64,000 question. I have a really hard time–even with my moderate 2020 demand number of 312,000 metric tons keeping the supply ahead of demand in my model. It stays in balance to 2020 only with substantially more hard rock capacity – Mt. Marion, Mt. Cattlin and later Pilbara converted to lithium chemicals in China for the most part. The number of suppliers will increase. Companies like Ganfeng and Tianqi will be increasingly significant. Others like FMC who fail to expand resource capacity will decline in significance.
It’s funny, when Luke Kissam [CEO of Albemarle (NYSE:
ALB)] says, “I’m going to get half the growth,” he is just throwing out a percentage with no path to get there.
If you look at the demand growth numbers – if Albemarle bought Orocobre (TSX:
ORL) and Galaxy (ASX:
GXY) – acquiring Mt Cattlin and developing Sal de Vida, operated La Negra 2 at capacity, and went forward with La Negra 3, they still wouldn’t get 50 percent of the growth. The timing doesn’t work. Demand grows too fast. Project execution takes time.
By 2020 the only new brine capacity Albemarle is going to have is La Negra 2.
Albemarle recently made an acquisition in China that will close early next year. They will get 15,000 metric tons of capacity, but they were already selling those lithium carbonate equivalents as spodumene via their interest in Talison. They can’t reasonably claim that as part of getting 50 percent of the growth because they already had that business.
Of course, they will have an upgraded margin on those lithium carbonate equivalents. They’re not just going to be selling the spodumene; they’ll be selling the lithium chemicals and they’ll have margin growth because of it, but it is double counting to say, “ok that’s another 15,000 metric tons of capacity we have.”
Again, absent an acquisition of more lithium raw material sources, the only real growth they have in the next few years is La Negra 2–that’s 20,000 metric tons.
So, if the lithium-ion battery market grows 130,000 metric tons, they get less than 20 percent of the growth. Even if you wanted to stretch it and say we’ll count the 15,000 metric tons, with the margin upgrade in China–that’s 27 percent percent of the growth, assuming my growth number.
If you go out to 2025, it gets harder to achieve the 50 percent because the demand growth rate steps up and they’re going to be out of potential capacity in Chile by then. The Atacama won’t, in all likelihood, support more than the volumes contemplated in their MOU with CORFO plus what SQM does. Yes, there is more lithium value potential in the Atacama, but there are water limitations and a lot of other issues that will ultimately hinder further development.
INN: Well, the amount of growth is so huge.
JL: That’s right. Albemarle’s target of 50 percent of growth is an unreasonable goal. In addition, Albemarle is not currently the largest lithium chemical supplier in the lithium-ion space. As of now, SQM is.
INN: Worldwide, or outside of China?
JL: That’s worldwide. The way I have always calculated share is to give the credit for the share to the company that makes the lithium chemical. Given ALB is now controlling some production in China via toll, they will get share credit for that output going forward.
But right now, SQM produces more carbonate than Albemarle does. If you look at July year over year, Albemarle’s exports from Chile are down a little bit, not up.
SQM is up substantially. A portion likely came out of inventory, but their production is up too. On the hydroxide side, Albemarle has historically been a minor player. They will be more important going forward because they have acquired tolling capacity but their plant in King’s Mountain was, at best, marginally successful.
FMC’s is currently number one of the “Big 3” in hydroxide capacity. SQM’s number two and Albemarle is number three. Later in the decade, Albemarle will probably move into the number one position as a result of the China acquisition. However, being number number one among the “Big 3” will not make them number one globally. Others in China are bigger. For the record, I do not believe FMC will ultimately triple their hydroxide capacity. Their premise that it will be easy to source carbonate as feedstock will prove to be incorrect. Look for a very limited hydroxide capacity increase from FMC.
For part two of our interview,
click here.
Don’t forget to follow us @INN_Resource for real-time news updates.
Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
