Lithium Demand surge, page-1604

As we await further commissioning updates, the SP track sideways and my patience gets tested, I like to remind myself why I am invested in PLS.

Note to self ….

Consensus amongst industry analysts is that LCE demand will increase to 800kt (Joe Lowry, Deustche Bank) to 1mt (UBS) p.a. by 2025. That represents growth of 18 to 21% p.a. over the next 8 years. However, the analysts keep revising their forecasts upwards. Joe Lowry conceded that his forecast “may look laughably low in 2 years”. I believe demand growth will continue to surprise on the upside, with 2025 demand materially higher than 1mt p.a. I base my forecast on EV sales doubling every two years (2017 and YTD 2018 sales growth has been faster than this, despite limited EV choice and availability). At the same time, history informs us that LCE supply growth will continue to surprise on the downside (i.e. delays).

I accept that near term supply and demand is clouded by questions about downstream conversion readiness. The picture looks clearer when looking further down the track. If I am correct in my outlook for EV sales, demand for lithium will exhibit a typical “s-curve” growth pattern, with annual demand increases of 250kt to 300kt by 2025, accelerating thereafter. That is, demand growth in 2025 will be higher than total demand this year. Given the time it takes to explore, drill, study, design, permit, finance, construct, commission and ramp up new mines (hard rock or brine), the industry will be challenged to increase supply to satisfy demand.

Given this environment, the lithium “winners” will be the existing large-scale players, capable of bringing on significant new production, in step with demand growth. Those players will need control of a large resource, have a track record of producing quality product, and have access to low cost capital to fund expansion. Producers such as Tianqi, Ganfeng, ALB and SQM (The Big 4) are all well positioned in this regard. I am sure POSCO is hopeful of joining that select group, but they are not there yet.

Where is PLS positioned? The key for PLS is to produce a high-quality product, reliably. If this can be achieved (I am confidant it will), access to low cost capital to fund a further (Stage 3) expansion will be readily available. This will position PLS alongside The Big 4 in capturing the lion’s share of additional value arising from the impending demand surge. What happens in the next few months is critical. Stay patient and watch closely.

Finally, there has been some discussion on this thread recently concerning the future SP potential of PLS. Some of that has appeared a little fanciful. But in the world that I see, where high quality lithium is both strategic and highly demanded, anything is possible.

All IMO