Recently did a bit of research in the battery materials.
One good read is this Livent Q1 earning call, very informative including the Q&As.
https://www.********/earnings/call-transcripts/2019/05/08/livent-corporation-lthm-q1-2019-earnings-call-tran.aspx
The predominant market trend in 2019 seems to be a drop in lithium hydroxide price (loss of the hydroxide premium) and an oversupply of spodumene. Hydroxide is needed for high nickle content batteries, aka NMC 811 or NCA batteries, which has higher energy density, higher performance and thus translates to longer ranges in EVs. The adoption of high nickle content battery however, was not as rapid as predicted. LG chem and Sumsung were expected to roll out NMC 811 batteries in early 2019, that has been pushed to end 2019 and maybe early next year. OEMs have stringent performance standard (largely driven by battery life warranties) and hence more time and investment needed to change their existing processing capacities. This has been made worse by the change in subsidy structure in China, which created a shift back towards LFP (good for electrical buses and lower-performance passenger EVs).
Short term
1. It appears that the hydroxide / spodumene market will still be in oversupply. If we look at the hard rock mine >> converter >> battery manufacturer (megafactory) >> car manufacturer supply chain, the bottleneck does not seem to lie in the conversion capacity, but rather in the battery manufacturers. That it is more difficult to produce high performance cathodes that can also satisfy car manufacturer's stringent requirements.
2. I am more pessimistic about the off-take agreement to be finalized in the near term
Quote"We've had a couple of customers who, only four or five months ago, were setting out pretty clear demand patterns for us as to what their expected deliveries of hydroxide would be this year, turning around and saying we've got to back away because we just found out we have to make these changes and we expect to be up and running late 2019. But, as of today, we will likely not need as much lithium hydroxide in '19"
The market is not ready for more spodumene yet. Shipment delays across all hardrock producers in Australia is to be expected.
3. The problem is not only in China, the magic Korean/ Japan off-taker is not likely to come on board soon
Quote"The customers that we talked about who are indicating that they will need less volume are not all in China. There are a couple that are outside China too. So, this broad shift, this broad technology challenge and the attempt to solve the specifications challenges set by the OEMs is not unique to China by any stretch of the imagination. So, what we're seeing outside China, though, is push back on the volumes. "
The Japanese and Korean are not pushing down prices, but pushing back on the volumes, that translates into accepting less shipments
4. For A40, as much as I do not like the dilution by the recent CR, at least it secured some capital to hopefully sustain until the end of the year/ early next year. Cant imagine if we still have to pay big sum of interests quarter by quarter in this market condition.
Median to long term:
1. The demand growth for lithium is still strong. It is just hard to predict when is the turning point of the market sentiment. Due to the current general lack of investment in the industry, new supply will be difficult to come online (look at Nemaska). I would expect this turning point to be sooner than expected.
2. Quality of the lithium chemical seems to be important, hopefully that will bring some comparative advantage to A40's product.
On the last note, the shift to high nickel batteries may come sooner. While LG chem and Sumsung has pushed their plans of NMC 811 batteries to later this year, Chinese company CATL has already started supplying NMC 811. One of the new EV models from GAC, Aion S apparently is a big hit in the EV market, surpassing 50,000 preorders in 3month. Not surprising due to the high performance, high range NMC 811 battery packs. When more models like this are delivered, that is when the the oversupply shadow eases away.
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