CRU Group: Coronavirus Impact on Lithium Unpredictable Right Now

Lithium producers are expecting to see some headwinds this year due to the effects the deadly COVID-19 coronavirus could have on their operations. 

But as the death toll and cases increase globally, the specific impact the disease could have on the lithium market remains to be seen.

“It is very hard to say at this stage what the impact of the coronavirus will be on the lithium supply chain,” Alex Laugharne, principal consultant at CRU Group, told the Investing News Network.

He added that at the moment it is unclear to what extent the virus transmits outside China; the impact it will have on global operations, logistics and getting people to work is also not clear. However, COVID-19 is slowing things down throughout the supply chain.

“I don’t think it is going to push prices up,” he said. “It just makes things more challenging, but we are yet to see any direction on pricing as a result of any of that.”

China’s dominance of the sector has become even more evident with the spread of COVID-19, with the trend to build supply chains to reduce dependency on the Asian country continuing to grow.

“At the same time, there’s also the downstream investments and strategic minerals policies by producing countries — Australia more obviously, but Canada as well, and the US working with both those countries to try to shore up supply of material, including lithium, and getting those supply chains less reliant on China,” Laugharne said. “I definitely think we will see trends increase in that area.”

Speaking on the sidelines of the Prospectors and Developers Association of Canada convention about how lithium has performed this year, the CRU Group consultant said prices have been very static.

“We’ve seen very little movement since December in spot prices,” he said. “We are in a holding pattern where we are waiting for some of the stocks that have been built throughout the value chain (to be burned off), as we saw demand underperform throughout the second and third quarter of 2019.”

It will only be after this happens that prices will move, he added, saying the COVID-19 outbreak could just add to the time it takes to work through those stockpiles.

“We certainly expect a demand improvement in 2020 compared to 2019,” he said. “Right at the end of 2019 there was an uptick in electric vehicle sales in China, which had underperformed through Q3, and hopefully that continues through 2020 and it isn’t too disrupted by the impact of coronavirus.”

In 2020, Laugharne expects lithium prices to improve from where they are at right now.

“It is tough to say when we will see that kind of uptick, in particular with the impact of coronavirus,” he said, adding that even though prices will improve, they will be below US$10 per kilogram.

For investors interested in lithium, Laugharne said one of the main factors to watch is any direction from Chinese electric vehicle subsidies and internal combustion engine policy that could impact the uptake of these cars in the short term.

“(Additionally,) announcements from producers of where cutbacks are being made, where projects are being shelved or any rescheduling that will give you an indication of when we will start to see the market move into a more balanced area,” he added.

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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.