I think we need to know more about the lithium brine as well as hard rock lithium supply and demand in global markets as GPP is now getting a lithium brine project.
The information below is from Deutsche Bank's "Welcome to the Lithium-ion Age" report which the best report so far about lithium. I am not adding any comment myself. I mainly get the parts related to lithium brine and highligted them.
Global lithium supply needs to triple in 10 years
Global lithium demand was 184kt in 2015, with battery demand increasing 45% YoY and accounting for 40% of global lithium demand.
We expect hard-rock supply to increase market share from 50% in 2015 to 57% by 2020, before
South American brine expansions begin to enter the market and the market share split comes back to 50:50 by 2025.
The current supply situation; 50:50 between hard-rock and brines Global supply of lithium minerals has been historically dominated by hard-rock mineral sources, however development of large-scale lithium brine operations in South America commenced in the early 1980’s. Global lithium supply has increased at a 7% CAGR growth rate from 1995 to 2015 to meet increased demand from mobile phones and other electronics.
Today, global lithium supply is around 171kt LCE, split roughly 50:50 between hard-rock and brines.
Today 83% of global supply being sourced from four major producers
1) Albemarle
2) SQM
3) FMC
4) Sichuan Tianqi
Capital intensity (Brine) vs. operating margin (hard rock) Lithium brine operations account for around 50% of global lithium supply, with hard-rock operations accounting for the remaining 50%.
Lithium brine deposits generally have better economics as lithium is already isolated and in solution within the deposit, negating the requirement for drilling, blasting, crushing and physical separation.
Brine operations also utilise solar evaporation to concentrate the brine within a series of ponds prior to purification. The downside of brine operations is that they are more capital intensive than hardrock operations, incur significant lead times to meaningful production (technical and geographical challenges), require economies-of-scale and have a long resonance time influenced by evaporation rates.
As global lithium demand increases over coming years, hard-rock operations will be able to respond to market conditions much faster than their brine counterparts.
Market deficit driving global supply response
Lithium is produced from either brine-based deposits or from hard-rock mineral deposits. Lithium products derived from brine operations can be used directly in end-markets, but hard-rock lithium concentrates need to be further refined before they can be used in value-added applications like lithium-ion batteries.
Over the last 12 months, global lithium demand has surged, leaving a number of Chinese conversion plants searching for lithium feedstocks to be converted into value-added products.
The capital-intensive brine operations, which account for 50% of global lithium supply, have been unable to respond quickly to market conditions and increase output. The subsequent supply shortage, particularly in China, has led to a significant surge in pricing...
New hard-rock projects entering into the market over the next 12 months
In 2015, around 45% of global lithium supply was produced in China through the processing of hard-rock lithium sources.
Orocobre the only new brine project currently entering the market
Orocobre (ORE.AX, Buy $3.70/sh PT) is currently ramping up the Olaroz brine project in Argentina, the first greenfields lithium brine operation in 20 years.
The Lithium majors are responding ALBAMARLE is the largest lithium producer in the world, controlling high quality assets in both lithium brine and spodumene. ALB plans to spend US$600m over the next 6-7 years to increase lithium volumes, with plans to significantly expand its Chilean operations (from 25ktpa LCE to 70ktpa LCE), including its La Negra plant, and invest in downstream spodumene processing facilities outside of China.
SQM is facing serious permitting issues in Chile and has sought volume growth outside of its home market, entering a joint venture with Lithium Americas to develop an Argentinean brine project into a 40ktpa LCE operation.
FMC, the third major brine producer, operates the Salar de Hombre Muerto operation in Argentina. FMC has a well developed ‘Special lithium products’ business, but is yet to announce any major upstream expansion plans, despite controlling one of the highest-quality brine deposits outside of Chile.
Marginal cost set by brine projects in the long term 76% of global lithium reserves are brine-based deposits, and while they are more capital-intensive and slower to respond to market conditions, brine projects have inherently lower costs and greater economy of scale.
As a result, we believe brines will reclaim market share after 2018 and spodumene pricing will be linked to the marginal cost of a brine asset producing lithium carbonate, not the other way round.
Technological breakthroughs for brines:
A number of international mining and industrial companies, including South Korean conglomerate POSCO and the privately owned Energi Corporation, are developing new brine processing technologies.
The major current economic constraint for brines is the cost to remove brine impurities, mainly magnesium, calcium, iron and potassium. Both POSCO and Energi have mineral rights over brine deposits in Argentina and are developing extraction methods that, instead of requiring evaporation ponds and large volumes of consumables to precipitate the impurities out of solution, employ a direct extraction method within a processing circuit to treat high-impurity brines. If these new processing technologies prove to be economically viable, the breakthrough could make a number of currently undeveloped brine deposits commercially viable.
Upstream: market deficit driving higher prices
Brine operations in South America account for 50% of current supply, while spodumene makes up the remaining 50%.
The Greenbushes mine in Australia (jointly-owned by Albemarle and Tianqi) is the world’s largest spodumene operation and accounts for almost 35% of global lithium supply.
Brine operations have lower operating costs but are more capital intensive and incur significant lead times to production (technical and geographical challenges).
In the short/medium term, we believe further supply responses will likely come from low-grade spodumene projects in Australia and lepidolite in China, Jiangxi province being incentivized into the market. Downstream spodumene processing facilities, currently based in China, will also need to expand to allow for greater capacity.
Longer term, the brine deposits that are already in operation have ample lithium resources to support significant brownfields expansions. While these will not enter the market in the next two years, we believe that taking a 10-year view, there will be a substantial response from the incumbent major brine producers, as well as greenfields brine projects, to market conditions.
There are three different types of lithium processors in China.
Firstly, brine based manufacturers account for around 20% of total nominal capacity. These producers usually own the development rights to salt lake deposits in Qinghai and their own processing capacities.
The second type is spodumene processing, which represents around 75% of total nominal capacity in China. These processors use both domestic and imported spodumene. Many processors had to stop production in 2015 when domestic resources began depleting and imported spodumene was in short
supply.
Last but not least are the lepidolite processors, which are the marginal players in China, with average production costs of US$7,000-8,000/t LCE. These producers were not able to survive by only producing lithium compounds from lepidolite in the past.
GPP Price at posting:
2.9¢ Sentiment: Buy Disclosure: Held
(20min delay)
