'In February 2018 Morgan Stanley issued a crushing report: the firm determined that Chilean brine would add 200kt to the market by 2025, effectively doubling supply'
Let me just demolish that Morgan Stanley (MS) report as an exercise once and for all. Its been pushed around so much and has done so much damage, that I feel its important for people to fully appreciate MS credibility in the lithium sector.
Here are the two relevant figures for supply and demand (source).
From the above, you can see that by 2025, they have supply at 727kt LCE (possible) and the market in oversupply by 145kt, so demand of about 582kt LCE. The problems.....
1. Morgan Stanley already illustrated it was wrong In 2019, Morgan Stanley revised their demand figures from 582kt to 700kt LCE by 2025. They join a long line of 'professionals' playing catch up with demand figures. In May 2017, Roskill revised up their demand figures from 328kt to 1009kt by 2026. Macquarie is there also along with many others. Underestimating demand being the common theme.
So MS has already admitted that its original numbers were wrong.
2. Even the revised 700kt LCE by 2025 leads to absurd numbers. The revision to 700kt LCE demand by 2025 is made up of 410kt used in EVs. According to MS, that 410kt is divided amongst 10 mil BEVs and 9.5 mil hybrid/PHEV. As Rodney Hooper explains in his excellent analysis (source), that simply is far too little lithium to cover all those vehicles.
Dividing the 410kt by those vehicles numbers result in a lithium carbonate mass to energy fraction of 0.51 kg LCE/kwh. The accepted value from many sources in the range of 0.8 to 1.0 kg LCE/kwh. For some reason brokers are picking vastly lower values than what research shows the value to be. Paul Martin's detailed analysis (has lots of sources there) gives estimate of 0.85 (source) and see Hoopers post for more values. If one was to use a more realistic value of 0.85, MS EV LCE demand would go from 410kt to 682kt, an increase of 272kt. That would put MS demand at 972kt/y by 2025 and into a lithium shortage.
3. MS fraction of BEV to Hybrids One further issue I have with the MS analysis is in its prediction of 50% of EVs being hybrids/PHEV by 2025. This fraction is shrinking each year. In 2018, all electric BEVs made up 69% of all EV sales and were up 3% over 2017 (source). I expect hybrids to keep declining to BEVs. This would drastically increase the MS lithium demand as BEV have a battery three or more times as large as hybrids.
4. More recent prediction revising demand upwards Roskill 974kt by 2025 Matthew Bohlesen 1100kt by 2025 Rodney Hooper 1001kt by 2025 ALB 1000kt+ (having also played catch up with 375kt (2015), 520kt (2017), 800kt (2018) In light of these, the 972kt figure from MS (after the fix of point (2)) seems more reasonable.
In conclusion, MS debunked their original numbers with their upward revision. However, even their 700kt LCE figure is highly problematic and a more realistic revision of their figures shows demand at new 1000kt/y.
5. My own opinion... One last point. I think demand will be even higher. Not based merely of the observation of repeated upward revisions each year but more so from the EV sales growth figures. SQM stated that 36% of the 2018 global lithium use was for EVs. That 36% EV component is growing at roughly 60% each year (global EV sale growth last 2 years and Q1 2019). I often see forecasts assuming a constant annual demand growth (near 20%). However, the 60% growth EV component will soon dominate as it increases from its current 36% consumption value. 20% annual lithium demand growth will be far too low if EV sales keep up at their current rate. It should be added that supply growth is 10-20% on average...another indicator of what is to come.
LPD Price at posting:
4.0¢ Sentiment: Buy Disclosure: Held
(20min delay)