Hi all,
This is the latest chart from our friend Joe Lowry regarding his expectations on future lithium demand by major product.
Basically Mr Lowry is expecting "The premium for hydroxide over carbonate will continue to grow"
It is difficult to read the chart, but some observations :
1-it seems lithium hydroxide will gain market share compared to lithium carbonate by 2020.
2- However, lithium carbonate demand will continue to grow and would still be the biggest source of demand for lithium in 2020.
3- It seems lithium carbonate demand would more than double between 2016 and 2020 (from 100.000tpa to 200.000tpa).
Given the above, what is the best opportunity for Orocobre : increasing lithium carbonate production or going the road of diversificiation to lithium hydroxide ? Of course, if the technology of producing lithium hydroxide from brines was already a prooven one with low ris of execution and well known costs, the answer to that question would be obvious : diversification is definitely the best way to pursue. However, we know that producing hydroxide from brines is a new risky adventure, and it may be better to focus on a well established and understood market (lithium carbonate) with low risk of execution for production expansion.
Given what preceded, IMO the following points should be considered, market wise, in order to assess the opportunity-cost value and risks involved pursuing the hydroxide route :
1- In the short-medium term (1-3 years), we will get more hydroxide supply than carbonate supply, thanks to Pilgangoora, Mt Marion and Mt Mattlin projects delivering (huge ?) amounts of lithium 6% concentrate to hydroxide processors in China.
IMO, if these projects succeed, the lithium hydroxide price frenzy may slow down faster than anticipated. Tianqi-Albemarle may also increase their lithium spodumene production from their australian Greenbushes deposit slowing further lithium hydroxide price increases (remember rumors circulated back then in 2015 that it was tianqi-albemarle playing the chinese market and squeezing supply that jump-started the lithium prices frenzy), and even the canadian Nemaska may add some short-medium term hydroxide supply to the market.
2- In the long term (3-5 years+), SQM may double its lithium carbonate production from 50.000tpa to 100.000 through its argentinian joint venture project with lithium americas. Galaxy may succeed in getting its argentinia project kicking, and even Posco has a big pilot plant in argentina, and other players may enter the game too. Sonora in mexico exploiting clay may also succeed, and Albemarle has serious plan expanding its lithium production in Chile.
However, unlike the lithium hydroxide more or less guaranteed increasing supply thanks to huge australian deposits and fast to market less risky spodumene rocks lithium mining, the future supply for lithium carbonate is FAR FROM a guarantee. Not only it takes time to prepare the lithium brine ponds, the process is clearly risky and capex intensive with some serious trial and error flow sheet processing required to adapt to the nature of the deposit (brine concentration, geography, height of terrain, temperature...) as evidenced by orocobre famous delays (SQM and Albemarle may do it faster due to their experience, but how much faster remains to be seen).
The point is : I personally fail to see serious amounts of new supply of lithium carbonate coming to the market in the short and medium term, unlike lithium hydroxide (thanks to tesla) that many players are pursuing fervently and due to higher prices and faster to market hydroxide production possibilities.
In other words, it may seem counter-intuitive, but the best opportunity for Orocobre may lie in the expansion of its lithium carbonate production, filling the gap over the next 2-3 years of no new lithium carbonate supply coming to the market, and avoiding to compete on price with the new short-medium term hydroxide capacity coming form australian-chinese players.
