Saturday, 25 April 2015

Lithium Hydroxide - A Perfect Price Storm Just Before Tesla Battery Storage Announcement.


  Joe Lowry has published another very interesting article on the current supply and demand in the different sectors of the lithium market and the coming shortage for the lithium battery grade materials. If you are interested in our sector - he will be the one to follow on twitter at  
  Joe has recently brought to our attention the rising powerhouses from China in lithium materials sector and, as you know, I am personally involved with International Lithium and Ganfeng Lithium from China as well. 

 "War On Pollution" in China produces a range of new concepts of electric cars to conquer the largest auto-market in the world. Not all of them will become the hit in the market, but the trend is apparent - EV is the future for mobility in China. Government supports this leap into the lithium based technology to close the gap with western auto-makers. Security of supply for lithium takes the centre stage in the development of strategic industry - electric cars. Tesla Gigafactory has already spiked interest to the lithium batteries and Megafactories are being built now in China by LG Chem, Foxconn, BYD and Boston Power.

International Lithium And Ganfeng Lithium: "The End Of The Lithium 'Big 3'.

  "Joe Lowry has published a very interesting article about the lithium market, major producers and rising Chinese powerhouses in lithium industry. You can find now more details on International Lithium strategic partner Ganfeng Lithium. Apple Electric iCar and Warren Buffet BYD move into energy storage to chase Elon Musk with his Tesla Gigafactory bring Lithium back onto the radar screens of investors now. Read more."


Joe Lowry:

Lithium Hydroxide - A Perfect Price Storm

Lithium hydroxide prices are hitting all-time highs in the second quarter of 2015. If you are a believer in the ultimate success of Tesla’s “gigafactory” – you should expect a steady run-up in hydroxide prices until new low cost capacity is built outside of China which isn’t likely to happen anytime soon.
For the past few decades, lithium hydroxide demand has been dominated by use in multi-purpose grease. Demand in the grease market grows at about the global average GDP rate and will continue to be the largest single use for lithium hydroxide for the next two or three years.
In the middle of the last decade, the emergence of NCA cathode use for power tool batteries and later transportation (read: EVs/Tesla) initiated a growth in demand for hydroxide that will ultimately supplant the grease market as the major demand driver for the second most used lithium chemical.
In January, Signum Box estimated global lithium hydroxide demand in 2014 at 31,000MT of lithium carbonate equivalents (LCE) and indicated battery demand was 30% of their estimate or approximately 9,300 MT LCE which is slightly over 10,000 MT stated as lithium hydroxide. That leaves 21,700 MT of LCE or about 23,500 MT of hydroxide going mostly to grease (65%).  Grease makes the world go round - demand is relatively price inelastic. Despite not needing the highest quality product, grease makers will pay what “supply and demand” forces dictate. The other 5% of demand goes mostly to dyestuffs and adhesives (think: “post – it” notes). This demand is also relatively insensitive to price.
Of the 10,000 MT of hydroxide going into battery in 2014, approximately 80% of that demand needs to be of a quality that, as recently as 2012, only one producer (FMC) could make in large quantities. Rockwood has since built a plant capable of producing a certain quantity of high quality product and at least three Chinese producers now can produce limited but growing quantities of high grade material.
Based on recent expansions, China has more than 40,000 MT of hydroxide capacity. Capacity outside China is slightly less than 20,000 MT. Simple math – the world has almost 60,000 MT of capacity and currently only 31,000 MT of demand. Why is price going up? Despite sufficient lithium hydroxide capacity in total, the capacity capable of supplying the rapidly growing battery market is limited and only growing in China. China is the high cost hydroxide producer and exporters pay a VAT penalty vs their "western" competitors.
China hydroxide capacity is divided among several suppliers and is based on the conversion of spodumene ore supplied primarily from Australia.  The average cost of hydroxide production in China is more than 50% higher than the cost of production by Albemarle/Rockwood but only slightly higher than the cost at FMC based on FMC’s issues the past few years in Argentina and North Carolina. SQM does not compete in the "high end" of the hydroxide market. In addition to the cost difference, China exporters cannot recoup the 17% VAT added to their exports. Going forward since the spodumene ore supply is controlled by the Tianqi/Albemarle Talison JV; spodumene price can only be expected to rise. Both Tianqi and Albemarle have made very expensive investments in their lithium assets and are under pressure to show reasonable ROI.
In 2014, Tesla’s actual hydroxide demand for the production of ~35,000 cars was only about 1,700 MT – still relatively insignificant. Tesla’s battery supplier sourced hydroxide at a much higher rate than current car production based on growth forecasts; however the reality is that hydroxide price has reached all-time highs BEFORE a significant impact from Tesla growth and the "gigafactory".
The “gigafactory” will require somewhere between 25,000 and 30,000 MT of lithium hydroxide when running at full capacity – hopefully in four or five years. The lower end of the estimated range assumes cell chemistry and raw material utilization improvements. In any case, Tesla’s projected demand would almost double demand by the end of the decade.
Neither Albemarle/Rockwood nor FMC have been willing to start construction of new hydroxide capacity based on demand forecasts from Tesla. Why invest capital in a project that will only serve to push price down if “gigafactory” demand  doesn’t materialize? FMC doesn’t have enough carbonate capacity to feed additional hydroxide capacity so they would need to expand carbonate and hydroxide or source carbonate from a competitor  in an increasingly tight carbonate market – neither scenario is attractive to them absent Tesla commitments.  It seems until Tesla is willing to contribute capital or provide “take or pay” contracts they will have to hope that Chinese companies keep expanding or a junior miner like Nemaska is successful. The former scenario is quite likely and will ensure high cost lithium hydroxide is dominant source of raw material for the "gigafactory". The latter scenario is highly unlikely.
A large grease market growing at GDP combined with a base lithium ion battery market growing in the 15-18% CAGR range plus the addition of the Tesla “gigafactory” demand seems to set the stage for continued upward price movements. Look for $11,000 to $12,000/MT average hydroxide price before you see new capacity in the western hemisphere."

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