After the controversial report published recently by Paul Gait, an analyst at Bernstein in London, stating that “Lithium demonstrates all the characteristics of a commodity bubble,” , while emphasizing that “The lithium frenzy should all end in tears”, Tianqi chief vivian wu responded to calm down investors fears by stating that "lithium bubble fears are overblown", while calling the leeaders of the industry to "behave in a disciplined way and focus on quality of supply" in order to susstain long term healthy growth of the sector.
Tianqi co-owns (51%) the Greenbushes mine in Australia, the biggest hard rock lithium mine on the planet, and is in the process of building a 400 Million $ lithium hydroxide plant in China, so the last thing Tianqi wants is investors dollars fleeing the lithium sector and worse, a lithium commodity bubble-burst which would jeopardize its investments.
Lithium demand might be booming, but it’s future supply that investors should be concerned about when it comes to one of the mining industry’s hottest products.
The metal -- used in batteries -- has been a rare bright spot for the mining industry as prices almost tripled in the year to June amid a supply shortage and rising demand for electric vehicles. That’s prompting producers to spend more on technology to boost supply, something that will improve significantly as the market grows, Sanford C. Bernstein Ltd. said.
“Lithium demonstrates all the characteristics of a commodity bubble,” Paul Gait, an analyst a Bernstein in London, said in a report on Monday. “The lithium frenzy should all end in tears.”
By 2040, about a third of all light vehicles sold will be electric, equivalent to 41 million cars and about 90 times the amount last year, according to Bloomberg New Energy Finance. Consultant CRU Group said in a June report that battery-grade lithium prices in China jumped to more than $20,000 a metric ton from about $7,000 in mid-2015.
But lithium isn’t rare and is one of the world’s most underutilized commodities, Gait said. Global mine capacity is expected to climb by about 70 percent on the back of new projects and expansions in the decade to 2025, according to Bernstein. More Production
“The bull case for lithium relies entirely on the demand side, as no other commodity shows such strong demand prospects,” Gait said. “However, as the lithium price has soared since 2015, and as the commodity has become fashionable, a number of companies are now proposing alternative methods of production.”
Supply is currently dominated by four producers -- Rockwood Holdings Inc., Soc. Quimica & Minera de Chile SA, Albermarle Corp. and FMC Corp. -- who control as much as 90 percent of the market. There are other firms looking to build new projects and Deutsche Bank AG and Macquarie Group Ltd. have both forecast that the market will move into a larger surplus at the start of the next decade.
“While the supply base of lithium is already significant, we believe it can expand further with a number of technological breakthroughs being developed,” Gait said. “The industry needed just over a year of elevated price to start allocating capital to find more cost-effective ways to extract lithium”
The chief executive of one of the world’s biggest lithium companies says the wave of new supply being developed to meet the red-hot lithium market will take longer to materialise than expected.
Speaking at a ceremony to mark the start of construction at the new $400 million lithium hydroxide processing plant at Kwinana south of Perth, Tianqi Lithium chief Vivian Wu said strong forecast demand growth and a history of issues in bringing new supply on line bode well for the market over the longer term.
“People tend to assume that it’s easy and simple … but from past experience we know that with a lot of projects it’s going to take a lot longer and be a lot harder than you imagine to produce good quality stuff,” Ms Wu said.
Demand for lithium is forecast to surge over the coming years due to growing demand for electric vehicles and home energy storage systems using lithium-ion batteries.
But a spike in prices has sparked a sharp rise in exploration for and development of new lithium deposits, with two new mines in WA entering production this year and construction of a third scheduled to begin in the next two months.
The supply response and relative abundance of lithium has prompted several analysts to warn of a looming crunch in the lithium market, with Sanford C. Bernstein analyst Paul Gait telling clients this week that lithium “demonstrates all the characteristics of a commodity bubble” and that the frenzy could “end in tears”.
Ms Wu said Tianqi was looking beyond the current “bubble” in lithium spot prices and was instead focused on building a quality business that worked with blue-chip customers.
“You will definitely see demand growth, that is certain, you can actually feel and touch it every day in China,” Ms Wu said.
“The bubbles in the short term are not optimal.
“We want the growth to be sustained, as leaders of industry we want to provide good quality stock to the world to make sure that happens.”
The potential for a lithium oversupply rested on the behaviour of the leaders in the industry, she said, adding that producers would need to behave in a disciplined way and focus on quality for the sector’s long-term health.
The processing plant under construction at Kwinana will take lithium concentrate from Tianqi’s 51 per cent-owned Greenbushes mine and process it into lithium hydroxide for use in batteries.
The plan is likely to see Greenbushes — the world’s biggest source of hard rock lithium ore, accounting for around 30 per cent of global supply — double its output, although that plan is reliant on approval from Tianqi’s partner at the mine, Albemarle Corp.
The new lithium hydroxide plant will create up to 500 jobs during its construction and employ around 180 workers once fully operational.
While the looming expansion of Greenbushes has been identified as a significant risk for the smaller entrants entering the lithium sector, the head of lithium producer Orocobre, Richard Seville, said Tianqi’s commitment was a “really promising sign”.
“Tianqi investing in Australia and backing its investment in Greenbushes clearly shows that they see a strongly growing market,” he said.
“It shows a real commitment to and acceptance of a strong demand side.”
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