Despite a broader commodities price rout, lithium did fairly well in 2015. Prices were on the rise, and news from Tesla Motors (NASDAQ:TSLA) stoked further interest in the mineral.
Two junior miners announced conditional agreements to supply lithium to Tesla’s lithium-ion battery gigafactory in Nevada. First was Bacanora Minerals (TSXV:BCN,LSE:BCN) and joint venture partner Rare Earth Minerals (LSE:REM), which hold the Sonora lithium project in Mexico, and second was Pure Energy Minerals (TSXV:PE) with the Clayton Valley project in Nevada.
Analysts have commented that the deals are light on detail and represent more of an “out of the money call option” strategy. Still, with Tesla announcing an expansion into the energy storage market, rising lithium demand from the battery space is garnering as much interest as ever.
Still, it’s important to note that Tesla is far from the only player in terms of lithium demand. Several other companies are planning lithium-ion megafactories of their own, and as Joe Lowry of Global Lithium has said, “the lithium market is going to continue to grow with or without a successful Tesla.”
The Investing News Network reached out to Lowry, as well as Chris Berry of House Mountain Partners and the Disruptive Discoveries Journal and Andrew Miller of Benchmark Mineral Intelligence, to get more insight into the lithium market in 2015. Here’s what they had to say.
INN: What are your thoughts on the lithium market last year?
JL: Pretty much as expected — a year of tight supply, growing demand and rising prices. SQM’s (NYSE:SQM) Q3 results were out this week. They said prices vs. the prior-year period were up 9 percent. My estimate is that SQM’s prices rose less than the industry average, which I would say was on average low double digits.
AM: The shortage of supply in the lithium market — and the subsequent price spikes of anything from 10 to 25 percent — has been the standout story in all niche minerals this year.
Lithium has been the first of the battery raw material markets to show how insecure supply can become in these sectors. Only a few years ago you could never have foreseen the issues that the major producers are experiencing in the Atacama and the inability of these companies to feed growing demand from the battery sector.
What the past 12 months have shown in lithium is a perfect example of how many other raw material markets may react as their end markets are increasingly dominated by high-tech uses.
CB: The price increases across the board are a very positive sign. As lithium ion is the “winner” for now with respect to battery technology, this ought to put lithium opportunities across all market capitalizations on investors’ radar for the next couple of years. A wild card, however, is battery technology and how quickly it is advancing. This could render some of the metals in batteries less critical (like lithium or cobalt) in the next few years, but for now, this is lithium’s game to lose.
As lithium is just about the only commodity to see a double-digit increase in price in 2015, predictably we’ve seen many juniors jump into the space to try and capitalize on the hype. It remains to be seen whether or not these new entrants will be able to raise adequate funds to make a discovery and then prove to end users that they can produce a high-quality product.
INN: Were your predictions for 2015 correct?
JL: I would say my general themes of tight supply, strong demand and rising prices rang true. I have never hesitated to make projections on my LinkedIn posts. I think my record so far is pretty good, but I will let others be the judge of that. I have to say the only thing I know about a forecast when I make it is that it is wrong — as in, it won’t be exactly correct — but I will put my overall record up against anyone.
AM: Yes. Benchmark put out a story in Q4 2014 outlining a shortage in the market for 2015. This became reality.
Looking at the market fundamentals at the start of the year, it was clear that there could be an issue in terms of supply, but the level to which this has been exposed and the subsequent effect this has had on prices — which have bucked the trend of almost all other commodities — has been surprising.
CB: Pretty much. Lithium demand increased, prices increased, battery costs continue to fall. I would have thought that miners’ use of technology to lower costs would have played a larger factor in the lithium market, but application of various technologies has happened more slowly than I thought it would. This is actually true for much of the mining industry where the current (wrong, in my opinion) mantra is to maximize production at all costs so as not to lose market share. This is also being done to service excessive debt loads on balance sheets.
INN: Any surprises that affected lithium that the market wasn’t expecting?
JL: I think some of the statements out of Albemarle (NYSE:ALB) show a surprising lack of understanding at their senior levels. This, coupled with letting go so many of Rockwood’s management team, may not bode well for their long-term dominance. Time will tell, but I think history will show Albemarle grossly overpaid for Rockwood. They can’t afford many (more) missteps. Once their analysts start asking tough questions I think their quarterly earnings calls will get a lot more interesting.
AM: The surprise for many industry observers was the speed of Orocobre’s (TSX:ORL) ramp up. We at Benchmark didn’t expect the company to reach capacity in the first 12 months, but many investors expected more progress. But these are quite technical chemical plants, and therefore it will always take time to work out the bugs and reach capacity.
This underlines the fundamental differences between these specialist chemicals and more traditional commodities. And therefore expectations have to change.
CB: Not really. Tesla’s stumbles were notable, but not really a surprise to me. This hasn’t affected the lithium market.
INN: What do you think the biggest news was in the lithium industry in 2015?
JL: China is the real story both from demand and supply (in the short term) perspectives, yet Tesla seems to dominate the lithium news.
AM: The biggest news has been the spike in prices. With what’s happened in industrial markets and no major developments in battery capacities this year, the level of these increases has been the big news.
CB: Continued strong demand in the face of an otherwise awful commodity market and generally sluggish global economy. Lithium has, for now, been able to buck this trend.
Stay tuned for our 2016 lithium market outlook!
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.