Manono the largest ASX listed Tin deposit, page-75

The outlook for the next wave of lithium producers remains positive

Lithium is feeling the sting of the COVID-19 pandemic with producers reporting declining revenues or outright losses.

Prices fell another 1.6 per cent in May due to weak short-term demand.

Added to this, the issues that plagued battery raw materials prior to the outbreak remain.

Ongoing uncertainty has prompted companies to delay expansions to preserve cash with producers Albemarle, SQM, and Livent collectively committing to $US285m ($411.3m) worth of cost cutting initiatives.

Local producers like Pilbara Minerals and Galaxy Resources have moderated production and reduced costs to position themselves for a market turnaround.

Battery supply chain experts Benchmark Mineral Intelligence noted that Chinese prices for lithium carbonate, lithium hydroxide and spodumene all fell in May.

It added that some cathode producers in South Korea and Japan are also having their second half 2020 orders renegotiated downwards on the back of a weak demand outlook from cell manufacturers.

However, the long-term outlook for lithium remains positive.

During April, Chinese new energy vehicle (NEV) production increased to 80,000 units.

While this is still down 22.1 per cent from 2019 levels, it represents a strong recovery from output in February, which was down 82.9 per cent from February 2019, according to Benchmark.

This is due in part to the extension of Chinese NEV subsidies to 2022, which highlights the Chinese government’s willingness to stimulate demand.

As a result, Chinese battery cell and car manufacturers have maintained or improved their long term commitment to electrification.

This is significant given that rechargeable batteries accounted for 54 per cent of total lithium demand in 2019.

Other moves also demonstrate the belief that the long-term outlook for lithium remains positive.

SK Innovation has announced plans to spend $US727m on a second battery plant in the US while Volkswagen is making a US$1.1bn strategic investment in Chinese cell-maker Guoxuan.

Likewise, while European electric vehicle (EV) sales in April were down 64 per cent month-on-month, there have been steps taken to address this including France’s latest €8bn ($13.1bn) investment centred around EVs.

The European Union is also increasing current penalties for carbon dioxide emissions, which is expected to encourage automobile manufacturers to accelerate investment in EV manufacturing facilities and engage with battery, cathode and raw material suppliers.

Industry consultant Roskill is also confident about lithium demand with its longer term scenarios continuing to show strong growth over the coming decade.

It forecast that demand will exceed 1 million tonnes of lithium carbonate equivalent in 2027 with growth in excess of 18 per cent per annum to 2030.

Challenges in bringing the additional capacity for mined and refined lithium products online to meet demand could ensure that future refined lithium supply will remain tight in the mid-2020s.

Roskill also noted that the move towards high-nickel cathode materials, to increase battery energy density, is accelerating demand growth for lithium hydroxide.

The Next Wave

There is a cluster of advanced ASX-listed lithium explorers not exposed to prevailing low prices who are preparing for the next bull market.

One of the forerunners is AVZ Minerals, which is progressing development of its Manono lithium and tin project in the Democratic Republic of Congo after completing a $10.7m placement from its strategic partner.

The company already has a definitive feasibility study that indicates that Manono would be capable of generating a post-tax net present value (NPV) of just over $US1bn ($1.58bn) and internal rate of return (IRR) of 33 per cent despite taking a conservative approach.

Both NPV and IRR are measures of a project’s anticipated profitability.

AVZ also estimated net profit after tax at $US3.8bn and a post-tax payback period of 2.25 years from the project.

At *, we tell it like it is. While AVZ Minerals is a * advertiser, they did not sponsor this article.


2020 could be the year that EVs move into the mainstream

While the automobile industry slumps in the face of the COVID-19 pandemic, there is one bright spark still remaining in the sector as the rest of the industry drops a gear.

Global car sales in the first four months of 2020 have fallen about one third from the same period in 2019, but the International Energy Agency (IEA) believes that electric car sales could reach a record share of the overall market this year.

The IEA noted that on a monthly basis the decline in sales was more pronounced, with China registering an 80 per cent drop in February, its sharpest year-on-year decline in a month that typically marks a decline in car sales because of the Lunar New Year holiday.

In the US, car sales halved in April while Germany recorded a 60 per cent fall.

All these pale in comparison with France, where car sales dropped by 90 per cent, the UK and Italy witnessed 98 per cent falls and India reported virtually no sales at all.

And while there are signs indicating that a quick recovery is possible in countries where the lockdown is gradually easing, the IEA currently expects overall car sales in 2020 to be around 15 per cent, or 13 million cars, lower than in 2019.

However, the lens is really focused on electric vehicle (EV) sales, with the IEA expecting EV sales in 2020 to be much better than for the rest of the industry.

It noted that while Chinese electric car sales fell 60 per cent in February, they also rebounded strongly in April, reaching around 80 per cent of the level they were at a year earlier.

China has already decided to extend subsidies and tax exemptions for new energy vehicles (NEV) by another two years to 2022 and China Daily quoted Minister of Industry and Information Technology Miao Wei as saying that restrictions on contract manufacturing will be lifted gradually while wider use of NEVs in public services will be encouraged.

He added the ministry would also step up the construction of charging facilities and enhance their interconnectivity.

China has stated that its goal is to increase the share of NEV sales to a quarter of all car sales in the next five years.

European EV sales also bucked the trend, rising 90 per cent to more than 145,000 vehicles in the first four months of the year, as 2020 is the target year of the European Union’s carbon dioxide emissions standards, which limit average carbon dioxide emissions per kilometre driven of new car sales.

Under the regulations, at least 95 per cent of new passenger vehicles manufactured in 2020 are required to produce emissions of not more than 95 grams per kilometre (g/km) of CO2. This will increase to 100 per cent compliance next year.

Additionally, Germany increased EV subsidies in February while the impacts of a system implemented by Italy in 2019 to encourage electric cars started to affect the market.

The French government is also moving to inject more than 8 billion euros ($13.1bn) into the country’s car industry and is looking to use the crisis to make France the top producer of electric vehicles in Europe.

Roskill noted that the EU Commission was considering a further strengthening of its support for clean transportation as part of the “green recovery plan” that could lead major producers to continue developing large-scale electric vehicle manufacturing in the next two years.

The IEA believes that global EV sales in 2020 will continue their upward trend and expects them to slightly exceed 2019’s total to reach more than 2.3 million vehicles and achieve a record share of the overall car market of more than 3 per cent.

High Voltage: EU could light the fuse on EV rollout with historic post-pandemic stimulus

Each fortnight our High Voltage column wraps all the news driving ASX battery metals stocks with exposure to lithium, cobalt, graphite, and vanadium.

The European Commission has unveiled a historic, one off €750bn ($1.3 trillion) package to help aid the EU’s economic recovery.

Called Next Generation EU, this cash injection could fast-track the nascent electric vehicle ramp up in Europe, one of the world’s biggest car markets.

“Our generational challenges — the green and digital transitions — are even more important now than before the crisis started,” writes the European Commission.

“Through the recovery, we will press fast-forward on the twin green and digital transitions.”

This recovery includes a focus on unlocking even more ‘green’ investment in electric vehicles, lithium-ion batteries, clean hydrogen, carbon capture and storage and sustainable energy infrastructure (like charging points).

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