Battery Metals

Lithium Investing

The COVID-19 situation has increased the risk of another market deficit emerging, and of further volatility in pricing. 

This year has been overtaken by volatility and uncertainty in the markets as the coronavirus pandemic continues to impact every sector of the economy.

Speaking about the impact of COVID-19 in the lithium space, Andrew Miller of Benchmark Mineral Intelligence said the disease has created a prolonged low price environment at a time when the backlog in supply was expected to reduce.

“This and the wider macroeconomic uncertainty are adding another obstacle to financing new projects,” he told the Investing News Network.

“We’ve already seen almost all of the majors cut back expansion plans since the start of the year, and current price levels won’t incentivize a rush to bring these new operations online, or sustain the development of other projects,” he added.

For Miller, ultimately the COVID-19 situation has increased the risk of another market deficit emerging, as well as the potential for further volatility in pricing. Furthermore, while the macro situation means there is unlikely to be a rebound in pricing in H2, prices will continue to stabilize at lower levels.

Looking at how lithium prices have performed in the past few months, the expert said they continued to edge downward in Q2, and it is likely the space will see continued convergence at lower price levels throughout the rest of the year.

“The slowdown in demand through H1 meant that excess supplies continued; however, there remains a premium on battery-grade pricing due to more restricted availability,” Miller said. “Although consumers are pushing for lower prices, there is a realization that prices cannot fall much further, and that current price levels won’t encourage investment at the rate required to meet future demand growth.”

Elaborating on what he expects to see in terms of demand this year, Miller said demand from industrial sectors is forecast to be down.

“While production of cathode materials will be slower, lithium purchasing is likely to increase towards the end of the year as consumers begin to prepare for 2021 battery production,” he added.

Demand is expected to decrease marginally in 2020, but given recent stimulus announcements and the continued push towards electrification from major OEMs, Benchmark Mineral Intelligence expects that by 2022 battery demand levels will return to the levels the firm was projecting in Q4 2019.

Commenting on the push to deglobalize supply chains, Miller said this is a necessity for a market that’s gearing up from 300,000 tonnes per year to over 1 million tonnes per year in the next five years.

“The increasingly diversified nature of downstream efforts outside of China and Asia means upstream efforts will have to follow,” he explained.

“At a processing level, this will see more plants located near emerging markets, but from a lithium raw material perspective it is also accelerating the need for new assets to be developed that can insulate downstream users from the risks associated with being wholly dependent on one or two regions.”

When looking at what’s ahead for the lithium market, Miller said investors should continue to keep an eye on the timeline for ramp-up and qualification of new material into western OEM supply chains.

“With the next phase of battery demand set to stem from European and North American markets, the partnerships and investments that end users have along the supply chain will say a lot about their ability to deliver,” he said.

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Securities Disclosure: I, Priscila Barrera, 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.



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