Lithium supply a significant risk for Western automakers and...

Lithium supply a significant risk for Western automakers and OEMs

You can look at lithium in one of two ways: the state of play in 2020 — or the potential state of play in 2030.

While present producers have been battling uninspiring levels of demand and the impact of the COVID-19 pandemic, the outlook 10 years hence is seemingly much brighter, especially with the projected growth in electric vehicle (EV) use.

On top of all this, there are — to use what is fast becoming a well-worn phrase — the known unknowns: on the one side potential non-mining sources of lithium or, worse, substitutes; on the plus side, though, totally new applications such as electric-powered jet airliners.

First, there’s the present situation.

It was reported this week that a new lithium refinery to be built in Western Australia will employ 300 staff — not the 500 initially planned.

The reason for the drop: the recent easing in lithium demand.

US mining company Albemarle, which owns 49% of the Greenbushes lithium mine in Western Australia, has already delayed start of construction until next year.

The refinery will produce 50,000 tonnes per year of lithium hydroxide.


Pandemic hit lithium demand at a bad time

British industry analyst firm Roskill says current soft market conditions for lithium chemicals are undermining the profitability of several major spodumene producers, with under-utilisation of capacity having an impact on their cost base.

During the first quarter of 2020, more than 50% of supply was marginal to loss-making.

COVID-19 has been another issue. In its half-year report to June 30, lithium producer Galaxy Resources noted that “the full impact of COVID-19 on its operations, projects and sales remains uncertain and fluid with the group monitoring the situation closely”.

It added: “With increasing pressure on lithium prices, producers and developers are slowing or stopping new mines and expansion projects”.

The company has already scaled back its operational plans for this year until the market outlook becomes clearer.

“Inventory stockpiles of lithium raw materials and chemicals continue to exceed normal levels,” it added.

Another West Australian spodumene producer, Pilbara Minerals, was also showing the bruises from recent market events.

Reporting its 2020 financial result, the net loss of $99.3 million was put down to “soft market conditions in China, weak customer demand for lithium raw materials and low spodumene concentrate prices”.

But Galaxy’s report also looks ahead to a brighter time.


Electric vehicles forecast to boost lithium demand through to 2030

The European Union’s subsidies for EVs, plus German and French incentives, are pushing battery powered automobile sales.

China is targeting a 25% penetration rate of new energy vehicles by 2025.

Chile’s state-owned copper commission, CoChilco, expects lithium demand to recover over the next few years, forecasting that demand in 2030 will be about 450% higher than it is today.

And much of that will be down to EVs.

Cochilco says EVs now account for 24% of lithium use; by 2030, EVs will be using 79% of all lithium output, with the remainder of future demand growth being propelled by electronics, energy storage and various gadgets including e-bikes.

There are reports that some of the reason for the present high inventories is that consumers are buying smaller amounts each time as they try to keep stocks on hand low.

Also on the positive side is this thought: by 2030, apart from EV sales roaring, there will no doubt be new applications for lithium.

One such application is electric passenger aircraft.

The 2019 Paris Air Show saw the launch of the world’s first commercial all-electric passenger aircraft.

An Israeli company revealed a prototype that can carry nine passengers for up to 1,040km at 440km per hour.

It is expected to enter service in 2022.

Getting a Boeing 777 or Airbus A380 off the runway, let along over thousands of kilometres of ocean with hundreds of people, their luggage and the all-important revenue earning freight is quite another matter.

Existing batteries are too heavy to be the sole source of energy on a long, or even short, distance air route using a wide-bodied jet liner.

Such a plane would need to carry thousands of kilograms of batteries (and consequently far fewer passengers and a lot less freight).

But work is under way on a new, lightweight lithium sulphur battery with increased energy density that its developers claim will allow electric-powered commercial flight.




Securing non-China product is vital for Western supply chains

Piedmont Lithium has both identified the need to find supply security outside China — and has proceeded to do that and is to become one of the only spodumene miners and lithium hydroxide producers not dependent on China for any part of its operations.

Almost all of the global spodumene is converted in Chinese plants.

In the June quarter, the company completed an updated scoping study for its integrated mine-to-hydroxide project in the US state of North Carolina.

Piedmont, which is dual-listed on the Nasdaq exchange, is planning to produce 22,700 tonnes per annum of battery-quality lithium hydroxide in North Carolina, targeting electric vehicle and battery supply chains in the US and globally.

Lithium hydroxide is required in the nickel batteries used in longer-range vehicles, and shortages are expected from 2023.

At present, most of the world’s lithium hydroxide is produced in China.

Piedmont is targeting automakers and original equipment manufacturers that are seeking localised supply chains.


Replacing lithium long way off — if ever

Researchers elsewhere are working to develop a sodium-ion rechargeable battery to replace the lithium-ion one.

South Korea has produced a battery that has a long recharging life, and the Americans and Chinese are working on the sodium technology to ensure a battery that would tolerate many more charge cycles.

However, it is noted in the reports that work on this new concept is running well behind what has been achieved with lithium-ion batteries — meaning this is a possibility well over the horizon.

And there is a big downside: sodium is three times heavier than lithium and is less powerful in battery applications.

These are not issues that are going to be overcome tomorrow.

And they may never be.



Lithium Production Volatility and Chinese Offtake Spree; Explosive Co Extends Offtake with Galaxy

Lithium market has been a tough ride for many ASX-listed lithium mining stocks over falling demand and tumbling prices in the wake of COVID-19 outbreak.

The spodumene price (delivered to China) plunged by 17 per cent during the first five months of the year 2020 to reach USD 425 a tonne, which now many industry experts believe would be the new normal for spodumene until after 2022.

• In the wake of tumbling prices, the lithium production across the continent is estimated by the market to slope downward, and the Department of Industry, Innovation and Science (or DIIS) anticipates that the production would fall by ~ 37.01 per cent in 2020-21 to stand at 131,000 tonnes of lithium carbonate as compared to the output of 208,000 tonnes (LCE) in 2019-20.

However, post 2020-21, the lithium production across the continent is anticipated to surge over improvement in prices and estimates of increasing EV uptakes after 2022, leading to a production spike in 2021-2022 till 146,000 tonnes (LCE).

To Know More, Do Read: Tesla Million Mile Battery, GM Ultium, and the Position of Lithium Mining Community

Production Plunge and Increasing Contract Volatility

Lithium production during the March quarter fell by ~ 18 per cent among ASX-listed miners while their shipment observed a fall of ~ 14 per cent, which is further anticipated by many industry experts to continue over price induced slowdown in the short-run.

However, the lithium demand is anticipated by DIIS to gain some steam post 2020 and considering the recent aggressive long-term offtake undertaken by Chinese battery manufacturers, the anticipation of a surge in demand over coming years makes further sense.

In the recent past, Chinese battery manufacturers have been securing long-term offtakes to avoid any future bottlenecks in the supply chain, which could possibly arise due to an anticipated sharp pullback in the production from miners amid a weak pricing scenario.

• For example, Contemporary Amperex Technology Co. Limited (or CATL) through its chemical suppliers continues to try to secure long term supply in spodumene.

• The Company recently secured offtake with Pilbara Minerals Limited via a related party, Yibin Tianji.

• Likewise, other battery manufactures are also securing spodumene supply from various Australian suppliers.

• Both Pilbara Minerals / Yibin Tianji and Altura / Hunan Yongshan Lithium Co. Ltd recently secured offtake agreements.

Yahua International Extends Offtake With Galaxy Resources

China based, Yahua International group, engaged in manufacture and sale of civil explosives, has recently launched a new plant capable of 20,000 tonnes per year of lithium hydroxide production in Sichuan province of China, for which the Company has now secured a spodumene contract as well.

• Yahua International Investment and Development Co Ltd further extended the offtake with GXY for further three years to 31 December 2025; however, the contract extension remains conditional upon Yahua continuing to meet the terms of the current agreement up to 31 December 2022 and a mutual agreement concerning the pricing mechanism between 2023 to 2025.

• Yahua has agreed to purchase a further 30,000 dry metric tonnes of 6 per cent lithium oxide spodumene during the remainder of 2020 and 120,000 dry metric tonnes from Mount Cattlin or each calendar year from 2021 to 2025 on a take or pay basis.

• Furthermore, the offtake price of the shipment would be agreed between the parties on a spot cargo CIF (Cost, Insurance and Freight) basis up to the end of 2022, and a pricing formula for the extension would be agreed prior to the end of 2022.

The recent offtake extension of Yahua with Galaxy, further supplements the existing contract of GXY with Meiwa Corporation of 55,000 dry metric tonnes per annum for 5.7 per cent spodumene concentrate up to 31 December 2021 (take or pay) and a 45,000 dry metric tonnes per annum of 6 per cent lithium oxide spodumene contract in 2020 and a further 60,000 dry metric tonnes in 2021 and 2022 with Yi Chun Yin New Energy Co., Ltd on a take or pay basis.

In the present situation, the production scenario across the continent has become more volatile with many miners no longer quoting average realised price and costs of production, instead, quoting their recovery rates, and in the status quo, recovery rates are also tumbling over campaign-style operations and stockpile processing.

For example, many Australian producers except few such as Pilbara Minerals and operations such as Greenbushes, have achieved only 55 to 60 per cent recovery, which in turn, is further supporting the market view that the current pricing environment could bring the production further down in the short-term.

In a nutshell, the production scenario across the continent is becoming more volatile over tumbling spodumene prices across the global front, which is now prompting ASX-listed miners to pullback production.

However, the market anticipates that after a short-run, post 2020, the demand for lithium chemicals could pick pace, and the market anticipation seems to be on some solid grounds, which could be inferred from the recent offtake activities of Chinese lithium chemical producers and battery manufactures.

Most of the Chinese lithium chemical and battery manufactures are extending their offtake with Australian suppliers to avoid any future bottleneck in the supply chain, which could arise in the short-term amid spodumene pullback from Australian miners.

In recent events, Yahua has extended its offtake agreement with Galaxy Resources by further three years, and the pricing of the agreement is also flexible.

While the current pricing undertaken by GXY with Yahua is on a spot cargo CIF (Cost, Insurance and Freight) basis up to the end of 2022, the price of the long-term extension would be decided later and considering the recent GXY’s pricing method; it should ideally reflect the prevailing market condition in future, which is anticipated to improve after 2022.


Coronavirus impact on battery raw materials: Lithium

Expectations for a rebound in new energy vehicle (NEV) sales after the Lunar New Year holiday have been put on hold due to the impact the Wuhan coronavirus is expected to have on the Chinese economy.

Battery raw materials market participants had hoped for an economic recovery following the phase-1 trade deal between the United States and China.

A drop in demand for EV battery materials from China could extend to producers in South America and Australia, but disruptions to Chinese exports could tighten global supply for processed lithium, especially in Japan and South Korea.

Supply and stocks

• Market in a significant oversupply situation, and stocks of ore and spodumene are high globally, but production cuts are being made at raw material end.

• We expect China's demand for imported battery raw materials to fall, causing an increase in stockpiles in South America and Australia.

• As China exports some processed material to South Korea and Japan, there may be delays in exporting this material - this could see seaborne prices get some countertrend lift.

Demand

• We expect already weak demand in China to be hit further as demand for NEVs suffers while household and business confidence likely deteriorates in the short term.

• But European original equipment manufacturers (OEMs) relying on lithium battery cells from Asia may suffer supply chain disruptions - this could hit EV manufacturing.

• If prolonged, disruptions will this persuade the EU to delay the introduction of CO2 penalties, penalties that the traditional internal combustion engine OEMs cannot really afford anyway given the depressed auto market.

• Demand for cathode materials from non-Chinese based production likely to pick-up.

Lessons learned

• Avoid being dependent on supply chains from one country/region.
• Shorten supply chains and diversify supply chain where possible.
• Should be good news for European battery industry.