Tuesday 25 October 2016

Electric rEVolution And Lithium Market: Joe Lowry - The "Big 4" And "Little One(s)".

Copyright Global Lithium LLC, used with permission.  

  Joe Lowry warns that his article contents very strong opinions about the state of the lithium market and its major players. He is a must follow for the latest news @GlobalLithium. Always do your own due diligence, but at least you will have a great start passing on a lot of nonsense. As we have discussed before: Lithium market is small but complex. I still believe that we have "The New Lithium Top 5" before FMC will be overtaken by another fast growing company like Ganfeng Lithium. Now you can find more information about International Lithium's strategic partner from the person who saw it coming and watched every step of Ganfeng Lithium growing to $4.5 billion market cap major lithium materials producer in China which is now part of "The New Lithium Top 5"

 "Ganfeng holds 15% stake in ILC and finances our J/V projects in Ireland And Argentina. It is providing not only capital to advance the projects, but a technology to extract lithium at the right chemical specification for Ganfeng as an end user. A lot of people even in the mining industry jumping into the lithium story now forget that lithium extraction is a chemical process.

  "Ganfeng has a strong commitment to supply Lithium product to various industries worldwide,” stated in the recent article Ganfeng’s Director, Wang Xiaoshen, “so we clearly have a vested interest in these projects and have been very hands-on in the evaluation of ILC’s properties. Our company is the only one in the world that has commercial production capacities to extract Lithium from both brine and spodumene, and we continually implement cutting-edge technologies to our processes. I feel confident that this is a fit for our operations and the potential these projects hold." Read more.

International Lithium and Ganfeng: Major Catalyst For Electric rEVolution And Security Of Lithium Supply.


  "We have discussed before the fast changing geopolitical landscape in the world and why New Energy Plan in China can change the balance in our world's economic system just in a few very short years. For more than 100 years oil was our only major source of energy powering the economic growth. Oil means power and power means oil - this sentence can determine the politics of all 20th century. But not anymore. We are just at the tipping point of the major tectonic shift from the centralized energy systems to the distributed electricity  generation and its consumption when we want it. Electricity is the most efficient form of energy known to us. Now, thanks to "The Learning Curve", we can produce it very cheap with solar and wind and we can store it very efficiently using lithium batteries. Cheap lithium batteries change everything here. We are in the catalyst stage of moving from 2 to 7000. 2 is the number of batteries in your farther's first remote control, 7000 is the number of lithium batteries in Tesla Model S. Read more."

Electric rEVolution: Joe Lowry - New Lithium Supply And Demand Forecast.

Copyright Global Lithium LLC, used with permission.

  "Joe Lowry provides us with his conservative outlook for Lithium Supply and Demand up to 2020. He is the must follow for all seriously interested in lithium market. Always do your very own DD, but at least you have the best data to work with. Now we have a news to put his view into perspective: Germany calls Europe to ban all ICE cars from 2030! It means that ramp up in the building production facilities for EVs and Lithium Batteries must be started now. Finally, we are talking seriously about The Switch to renewable Energy and Electric Cars by 2030! Lithium Technology is here and Lithium is a magic metal at the very heart of this Energy rEVolution. Read more."

Joe Lowry:

Beginning in March, 2015 I wrote a series of posts regarding the end of the Lithium “Big 3”. Later I mentioned my belief that the “Big 3” was morphing into a “Big 5”. Looking at the market a little over a year later it seems I was incorrect about the “Big 5” concept. It now seems for at least the next five years there will be a “Big 4” and another group that can be called the “Little Ones”. 
What does it take to be a member of the “Big 4”? Scale matters, product line breadth counts, ability and willingness to invest in new capacity is assumed. Geographical diversity is a bonus. A single plant, single product player is not going to enter the “Big Leagues of Lithium”.
Each “Big 4” company will soon be adding capacity in both carbonate and hydroxide: the two lithium products critical to the lithium ion battery market. It doesn’t take a rocket scientist to guess who the “Big 4” are: 
For now, Albemarle retains the mantle of “Lithium Superpower” and #1 industry player. They have the most profitable lithium business and the greatest breadth of products. ALB would like the world to think they are the leading supplier to the lithium ion battery market but that is NOT the case; however, it is clearly an aspiration. The downstream (organic) lithium markets they dominate are slow growth but a significant contributor to ALB’s bottom line and really what makes them the clear #1. Until ALB’s LaNegra carbonate expansion is producing at a significant rate, SQM will remain the leading supplier of lithium chemicals to the battery market. 
ALB’s, yet to close, acquisition of one of their China tollers will make them a legitimate force in the hydroxide market and help compensate for the failure of their King’s Mountain plant but at the end of the day they are currently an “also ran” in hydroxide and are not likely to enter the top tier of LiOH producers in the next five years as the two top Chinese players (and fellow "Big 4" members) are building large plants. Another fact the company doesn’t like to talk about. 
I expect ALB to attempt to acquire one or two juniors before the end of 2018 – perhaps one from Australia and one from the Americas. Time will tell what they do with all the cash from their “non-core business” asset sales.
The most significant open issue for ALB, besides lack of management depth in lithium, is their MOU with Chile. The MOU that was supposed to result in a contract by the end of Q1 – is still an open item. Given the aggressive stance of CORFO regarding extracting value from the “people’s lithium”, ALB might be better served by waiting until after the next election in Chile to finalize the agreement. In any case, who knows what Luke and company are thinking? Luke has to know the high price environment is here to stay for the next few years. He also knows that his lithium business will have great quarter over quarter comparisons in 2017 driven by price, the margin upgrade from a full year of producing lithium chemicals in China and a bit of volume from the expansion in Chile. Nevertheless, ALB continues to talk down price expectations and claim the market is in balance – better to lower analyst expectations. ALB is a master of hyperbole when discussing their lithium business.
SQM quietly remains the leading supplier of lithium chemicals to the lithium ion battery market. Despite their difficult relationship with CORFO, I expect SQM to be a much stronger player in the lithium market in five years than they are today and, no, they won’t be acquired by Tianqi. Hopefully they will start construction of the plant at Cauchari within 12 months either as partner in the JV or after having taken LAC out but in any case, I do expect SQM to find a way to increase capacity somewhere in the Americas. Enough said. 
Sichuan Tianqi has had an incredible rise over the past decade. It was only a few years ago while I drank tea with their leader in Chengdu that he told me his company would acquire a significant lithium resource. It seemed impossible at the time but he accomplished his goal, and in impressive fashion, beating out Rockwood for Talison. 
Tianqi paid too much for GXY's carbonate plant in Zhangjiagang and their planned hydroxide plant in Australia will likely prove to be a less than optimal allocation of capital. There were probably better places outside of China to locate this plant. In any case the new plant, unencumbered by China VAT, will be very profitable given the low cost Talison feedstock. 
Buying the small stake in SQM was a bold stroke but I doubt Tianqi has a chance of taking control. Owning a few % of SQM is nice but won't give them much of a voice in South America. You can't win them all.
In my opinion Tianqi will continue to grow as a force in the lithium market but in the end……
Jiangxi Ganfeng will become the #1 player in China and may emerge as a top two or three player globally. Ganfeng has a very different strategy than Tianqi. They started downstream, sourced material and waited until recently to invest in a resource. In a very short period of time, Ganfeng became the number one global lithium metal supplier. They also became a leading supplier of butyllithium in Asia. Next, they moved from downstream up the product chain where they now have more hydroxide capacity than any of the old "Big 3". They are the most nimble of the "Big 4".
Ganfeng is the global leader in their ability to convert lithium by-products and waste streams into high quality lithium chemicals. When they told me in 2006 they would start using lithium chloride brine from SQM as a feedstock in China, I told them all the reasons why that was a bad idea – shipping so much “water” across the Pacific Ocean. They smiled, nodded and had the last laugh as they proved me and other doubters wrong. Already a larger LCE producer than FMC before they begin to receive spodumene from their investment in Mt Marion, the future indeed appears bright for Ganfeng who knows how to add capacity with low capital costs.
FMC is the charter member of the “Little Ones”. Orocobre will likely be the second member once it demonstrates it is out of start-up which could be another year. FMC is a sad story – once the global leader in lithium technology, now they seem like a junior mining company hyping the “House of Cards” (see my former post) hydroxide strategy that is destined to fail. Perhaps the greatest mystery in the lithium world is why FMC doesn't expand Hombre Muerto or partner with another company to do it. It takes a long time to destroy a great lithium franchise but FMC is almost there.
The above does not mean I am negative about a company like Galaxy who has both hard rock and brine assets or a company like Pilbara who also has the potential to make a significant impact on lithium supply. The point is becoming a major in the future will take more time, require major capital investment and the ability to produce multiple products. 
There will be more "little ones" by 2021. 
In my opinion, the Big 4 will probably morph into the Big 5 or 6 by at some point in the next decade. At this juncture I can’t tell you who the new majors will be but, of course, I have some ideas………."

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