Another article in support of the future of lithium Lithium...

Another article in support of the future of lithium
Lithium giant Albermarle contradicts Morgan Stanley on electric vehicle growth

8th March 2018
Barry FitzGerald
Lithium stocks are still carrying the scars of Morgan Stanley’s February 28 opus on how there was long-term price pain coming for the high-flying battery metal because of the wall of new supply in the works.

It was depressing reading but hey, it was only the opinion of an investment bank. The key factor in the gloomy assessment was Morgan Stanley’s view on penetration rates of electric vehicles.

Its prediction of a 45% fall in lithium prices by 2021 assumes a much slower uptake of EVs than most others have it. From a 1.6% share of the global fleet in 2018, Morgan Stanley reckons 9% penetration is what should be expected by 2025.

On that basis, it sees 2025 demand at 578,000 tonnes of lithium carbonate equivalent (LCE). Industry players have very different assessments of what is coming.
And if you had to bank on one of them being right, it would have to be one of the world’s big three LCE producers, US group Albemarle.

It is deeply embedded in the industry and its real world assessment, based on what its customers are telling it, is that come 2025, global demand will be more like 800,000-plus tonnes of LCE, assuming an EV penetration rate of 12%.

Interestingly enough, Morgan Stanley’s hatchet job volunteered that it would take a 2025 penetration rate of 13.7% to wipe out the surpluses it believes are coming under its scenario where 2018 is the last year of a global lithium market deficit.

That is tantalisingly close to the real word assessment of Albemarle, one it delivered in its earnings call the day after Morgan Stanley’s opus hit the screens. So while Morgan Stanley frets about massive oversupply, one of the biggest and best of the business suggests things are set to remain tight.

The 50-plus ASX-listed stocks that have a complete or partial focus on lithium nevertheless remain scarred from Morgan Stanley’s assessment.
As Warren Buffett would say, there’s good news in that as things have got a whole lot cheaper for investors in the lithium space, assuming they accept the Albemarle view over that of Morgan Stanley.

Albemarle’s view – its demand forecast for 2025 is 222,000 LCE tonnes higher than Morgan Stanley’s and compares with last year’s actual demand of 228,000 LCE tonnes – points to a continuance of elevated pricing and demand growth, particularly as its modelling does not capture grid demand for renewable energy storage batteries.

On that basis, the established ASX lithium producers, those about to start up, and the explorers that have hitched themselves to the EV revolution by looking for the next big lithium deposit, can expect a return of investor interest, damaged as it was for a time by Morgan Stanley.