INDUSTRY & MARKET UPDATE
The year of 2017 has been another that has seen accelerating demand for lithium ion battery applications, led primarily by significant growth in electric vehicle (“EV”) consumption across the globe, as well as the commencement of broad adoption in large scale commercial energy storage systems. The last quarter of 2017 was characterized by further assurance that the electrification of transportation is now a reality, as leading global jurisdictions announced further policy initiatives, including extensions of EV tax rebates in China and the United States, as well as a proposed 30% reduction in European CO2 emissions by 2030, and with continued announcements from leading global automobile manufacturers unveiling long term EV strategies. These developments underpin a continued healthy outlook for growth in the EV sector throughout 2018.
Total lithium consumption throughout 2017 looks set to be more robust than originally projected by many industry professionals and analysts alike. The sector saw some new supply come online from a couple of hard rock projects in Australia, growth in demand was stronger than supply and combined with a continued lag in the overall supply side response, including lower than expected production from South America and continued long lead times for ongoing development projects, the market for lithium chemicals remains incredibly tight and continues to support a strong pricing environment. As at the of Q4 2017, pricing for battery grade lithium carbonate in China was up an estimated 32% when compared to the same period in Q4 2016.
The New Energy Vehicle (“NEV”) sector in China also recorded record production volumes for the full year. The China Association Of Automobile Manufacturers reported total NEV production of c.794,000 vehicles for 2017, representing a 54% increase over 2016 production - penetration rate of NEVs increased 0.9% to 2.7% out of the total 29 million vehicles that were produced in China during the year. Importantly, the total number of Battery Electric Vehicles (“BEV”) that were produced in the year was c.666,000 - representing a share of 84% of all NEVs produced, a 3% increase as compared to BEV share in 2016, with the balance being Plug-in Hybrid Electric Vehicles (“PHEV”). BEV production growth rate year-onyear was 82%, compared with a year-on-year growth rate of 40% for PHEV. Growth in the BEV or pure electric segment is significant to note, as these vehicles have much larger battery capacities and therefore have a higher lithium intensity, as compared to PHEVs.
As a further tailwind to the continued acceleration of lithium demand for the coming year, the Ministry of Finance in China recently announced plans to extend the tax rebates on the purchase of NEVs. Previously set to expire at the end of 2017, the rebate has now been extended through to the end of 2020. This will provide continued support to local auto manufacturers as NEV production quotas and cap-and-trade policies begin to be introduced to prompt the complete phase out of internal combustion engine (“ICE”) vehicle production over time. The “cap-and-trade policy” is the previously announced NEV production credit quota policy by the Ministry of Industry and Information Technology. The year of 2018 will be when ICE (“Internal Combustion Engine”) vehicle manufacturers who wish to continue producing traditional vehicles, will start preparing for future production ramp-up of their NEV models in order to meet the mandated 10% and 12% NEV production credit target in 2019 and 2020 respectively. Taking into account how the credit system is structured, 12% in 2020 would represent a range of 4-5% NEV share of total vehicle sales in the country.
With China having clearly asserted itself as the global leader in the NEV space, several international automobile manufacturers have inked joint venture (“JV”) agreements with Chinese partners in an attempt to penetrate the world’s largest market. Volkswagen and Chinese partner JAC Motors have committed to jointly investing €10 billion to develop NEVs in China, and Daimler in partnership with BAIC announced plans to invest US$755 million into local domestic production. Global auto giants Ford and Toyota also announced plans to penetrate the Chinese market through the establishment of JV partnerships (Ford with Anhui Zotye Automobile, and Toyota with existing local partners)
Demand growth in electric vehicles also continued to accelerate in the United States (“US”), as that market recorded its 27th consecutive month of growth. The domestic market was given a further boost in late December as the federal electric vehicle tax credit (up to US$7,500) for US taxpayers purchasing a EV was maintained in the latest tax legislation passed by US Congress. InsideEVs reported plug-in vehicle sales of 57,600 units throughout in Q4 of 2017, representing 18% growth as compared to the same period in 2016. Total plug-in vehicle sales recorded for 2017 were c.200,000 vehicles, representing an increase of 26% versus the previous year. Such growth was maintained despite an overall fall on an annual basis in new car sales within the US market.
In the energy storage sector, the world’s largest lithium battery system (129MWh) was switched on at the Hornsdale Power Reserve in South Australia. Bloomberg New Energy Finance also reported that the global energy storage market is projected to double six times by 2030. These growth estimates mean that total installed capacity could reach c.100GWh and c.300GWh by 2025 and 2030 respectively, with investments of up to US$103 billion for the same period. The Hornsdale Project example demonstrates that energy storage is rapidly becoming a key resource in managing grid stability and promoting the penetration of renewable energy in meeting peak electricity demand needs. 8 GALAXY RESOURCES LIMITED - 31 DECEMBER 2017 QUARTERLY ACTIVITIES REPORT
With strong increasing demand for electric vehicles, Chinese battery manufacturer CATL announced an intention to raise US$2 billion in a planned IPO on China’s NASDAQ-style ChiNext board. In the offer prospectus. CATL has indicated that the proceeds of the capital raising would primarily be used to fund the construction of two new battery plants, including a giant 24GWh plant that will underpin a projected expansion of their total manufacturing capacity to 50GWh by 2020.
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1.3¢ Sentiment: Buy Disclosure: Held
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