Why I'm saying $5 in September (not it considering T/O offer price) is this;
The market will understand that the the low lithium price story is illusion and the EV sales are going to be at least 40% higher than last year, the lithium mania V.3 will start again soon around July. There are many other details to be mentioned in this topic. But I will give you the brief summary.
Low lithium price story is an illusion. I don't buy it. They are the reject shop street prices.
The lithium prices looks low now as you know. But it only looks low, actually it is not low. It's an illusion.
The lithium prices published by Fastmarkets, BMI and LME all about lithium spot prices. However the spot lithium sales are only one 10th of total lithium sales. 90% goes through the offtake contract sales.
Therefore the spot prices does not represent the lithium prices at all.
CHINA'S LITHIUM IMPORTS AND PRODUCTION IN BRIEF;
There are a lots of different type of lithium supply channels in China. The big buyer (major lithium producers like Ganfeng, CATL, General Lithium) buy a lots of lithium spod concentrate from Australia through offtake agreements. Most of them buy from PLS. (PLS sells little on spot market). Those big producers also buy end product of lithium carbonate from South American producers like SQM and Albemarle. The price of those imports after 2021 has been are quite high not cheap at all.
China also produces lithium carbonate from its own lepidolite resources and salt lakes. Slat lakes are nor producing much but they are planning a lot now. I'm following them. However the grade is nothing close to South American salt lakes, hence the cost is very high, but still was viable when the lithium price is higher than 250k yuan per tonne but only for low quality lithium carbonate.
A costly and dirty lithium carbonate production from Lepidolite;
When it comes to lithium carbonate production from lepidolite. This is a terrible production type. Very dirty and high cost in terms of price and environment.
Mines are mainly concentrated in the Jiangxi Yichun Tantalum-Niobium mining area and Yifeng Huaqiao mining area. The proven reserves of Chinese lepidolite is 5 million mt of Li2O equivalent. (for comparison; LTR's Li2O content is around 2.5mt)
The production capacity of lepidolite-based lithium carbonate in Jiangxi expanded to approximately 100kt in 2022, accounting for about 20% of China’s total lithium carbonate capacity including all imported material.
Low grade lepidolite, high cost process The grade of the lepidolite concentrate is between 0.4% and 0.8%. (For comparison again; imported spod concentrate from Australia is around 5.3%).
Producers use about 19-20 mt of lepidolite concentrate to produce 1 mt of lithium carbonate. For comparison again; for making 1t of lithium hydroxide 7.5t of SC6 6% spod concentrate is needed. However for making lithium hydroxide from lithium carbonate another process is needed and its cost is around $2.5-$3k per tonne.
Huge waste generation; Due to the addition of other supplementary materials, it will generate over 20 mt of waste slag during the production process. Such a large amount of waste has also become a major problem.
100kt lithium carbonate production from lepidolite couldn't stop the lithium price escalation in 2022..! Yes that was the fact. If the lithium price was not that high in 2022, the Chinese lepidolite mines were not be able to operate either. They started in 2021 with a production rate of 50kt-65kt and increased it to 100kt in 2022. But the lithium prices kept increasing because of the high demand.
Low lithium price story is an illusion. What happened in the spot market was this;
In Nov. 2022 lithium price peaked. Then all of a sudden it started to go down. But that was only the spot market.
At end of last year low end mid nd small Chinese battery producers (the ones which have to buy on spot market) started to use their inventories for production and didn't buy new stocks from the convertors (lithium carbonate and hydroxide converter and smelters). Then the converters did the same as they had high level of stocks and used their inventories and didn't buy spod concentrate.
They also thought that the Chinese government subsidies for EV was ending in the new year and EV sales could have been low in January and February. In January EV sales was very low, much lower than previous year's January. Then by the start of February Chinese gov. installed the subsidies back. The EV sales was good again in Feb and much better in March.
But these were only the mid and small type producers. The big lithium producers were buying by offtake agreements at much higher prices. When we look at the offtake agreement prices, for example PLS's offtake agreement prices, they are about $6300/t. Much higher than the spot market price.
"Chairman of Ganfeng Lithium, one of China's top two lithium producers, the other being Tianqi Liqthium, said that the slump in lithium carbonate prices is not only associated with supply-demand relationship, but is also the result of inventory cycle of upstream and downstream enterprises in new energy vehicle industry chain, back-and-forth negotiations between sellers and buyers, as well as market sentiment.
Wang Jinben, independent director of Ganfeng Lithium attributes the price slump to downstream destocking amid escalated price war among car makers. Wang believes that with the arrival of peak season in new energy vehicle market, lithium carbonate prices will see little downside room in view of slow capacity release".
LET'S CUT THE SPOT LITHIUM PRICE BS LITHIUM PRICE & VOLUME ON BIG SALES CONTRACT ARE ACTUALLY INCREASING (YoY)
Let get facts right. See this news from SMM (Leading metals information provider in China)
I said on Twitter to the face of Fastmarkets; "I don't believe your lithium price indicators/news"
Volume increased 77% YoY: "China exported 10,235 mt of lithium hydroxide in March 2023, a month-on-month drop of 1% but a year-on-year increase of 77%." "Among them, exports to South Korea fell 16% from the previous month, and those to Japan rose 47%."
Price increased 103% YoY "The average export price was $57,813/mt in March 2023, a drop of 5% month-on-month and a surge of 103% year-on-year. The average price of lithium hydroxide exported to Japan was $99,600/mt".
It's interesting that Japan pays $99,600 per tonne of hydroxide. I can only think that they ask for the highest quality and purest lithium hydroxide from Chinese.
But these are not spot prices. These are contract prices. If you go and have a look at SMM's spot price list you will still see much lower prices.
Who buys on the spot market? The ones need little quantities and lower qualities. I couldn't think that Tesla, LG or Ford calibre of companies would go and buy on the spot market.
What matters for us is the EV demand (sales) and its growth rate.
If the EV sales are increasing by a certain grow rate and if the lithium supply can't grow at the same rate then a deficit will occur. That's an obvious result.
As I said before the EV sales was 10.5 EVs (BV/Full battery + PHEV/Plug-in Hybrid) in 2022. It is expected by the forecasters that EV sales will grow at least 35% in 2023 and EV sales will be around 14m at least.
I think it will be much more. IMO it will go over 15m EVs and growth rate will be 45% because the competition between the two major EV makers Tesla and BYD has just started and they are making huge price discounts in these days.
When it comes to the lithium supply;
The lithium prices went up to "astronomical" levels in 2022 because the supply couldn't match the demand. (Btw, just remember that lithium is being used by other industries other than EV battery industry).
Was the lithium prices "astronomical" in 2022? I don't think so.
The cost of spod is around US$500-$600/t for many mines. And selling it for US$6000-$7000/t. That is very fair IMO. Because those mining companies and their investors take a lot of risk to discover that lithium, a risk which could be higher than gambling for some projects, and find investment to develop it, etc etc. That is very high risk IMO.
So, it's very hard to make a new discovery, especially a Tier-1 project discovery is very rare.
Anyway, the lithium price went high because of supply demand deficit in 2022.
The lithium production was estimated to be around 700kt LCE. (no one is sure to say the exactly right number).
If we increase it by the factor of 40% for 2023 the lithium demand will be around 1mt LCE.
(We don't take the 45% increase for total demand because it is for EV, I have to discount it because other lithium industries will not show the same growth rate)
OK.. demand will be around 1mt LCE in 2023.
Where will be the 300kt LCE supply coming from?
300kt LCE implies to 2,250,000t spod concentrate supply..! Some of this demand will be supplied by lithium brine based lithium carbonate as well.
Even LTR's first year production will be at 600kt rate.
I don't know many mines starting new production this year. Only Sigma in Brazil starting soon and Sayona in Quebec has just started but I never expect them to start full production this year. They will be still in commissioning stage until the end of this year. ALB/MIN Wodgina is going to ramp up prodcution this year too.
Chinese lepidolite mines can't produce any more than 100kt LCE as the price is low and that's the top of their capacity. 9the ones illegally operating were closed down in the Feb.)
So let's wait and see how the supply/demand saga will be solved.
(20min delay)