Expert Panelists Talk Lithium Prices, Trends and Risks

At the recent Lithium Supply & Markets event, experts from Lithium Royalty, Pala Investments and Traxys shared insights on investing in lithium today.

Lithium prices have been rising this year, with many stocks also seeing year-to-date gains.

Because of its essential use in electric vehicle (EV) batteries, investors have been focused on the future of lithium as governments continue to push for lower carbon emissions and more EVs.

But it’s not the first time the lithium market has seen investor interest increase as prices for the commodity rise — so what makes today unique?

What’s different about this year’s lithium rise

From a producer perspective, there’s strong market sentiment. “It’s a great time to be a lithium seller, but a lot of major EV companies are having struggles to source materials,” Ernie Ortiz of Lithium Royalty said at Fastmarkets’ recent Lithium Supply & Markets conference.

Many battery metals market participants have experienced exciting prices rises before — in 2016 and 2017, lithium spiked significantly, but then declined and stabilized in the following years.

“As far as differences (from 2016 and 2017), we’re seeing new highs in spodumene. Not yet in chemicals, but that’s likely to come in the next few months,” he said. “EV offerings and the overall end consumer demand is a lot stronger and a lot more tangible than what it was in the past.”

Over the last couple of years, EV adoption has risen dramatically, Jessica Fung of Pala Investments said.

“I don’t think during the last sort of ‘lithium boom’ we had a 10 percent EV penetration rate anywhere in the world. And that’s where we are today,” she explained during the panel. “For us now, this is a real structural change, it is proving to the markets that this is not just some fleeting green move, this is really the direction in which consumers and the markets are going.”

Pala Investments sees lithium demand quadrupling over this decade, which the firm has never seen before in another commodity.

For his part, Erez Ichilov of trading firm Traxys also said things look different than in previous years.

“The main difference is that we’re talking about everything in present tense and not as a futuristic utopia,” he said. “We’re actually seeing this moment where we’re not just talking about a future supply chain that may or may not emerge with a lot of question marks, but we’re perhaps at the beginning of the first true boom/bust cycle — which will hopefully be a long boom and then some kind of a plateau.”

With forecasts looking at lithium demand of around a million tonnes by 2025, and most likely doubling by 2030, many are wondering what sustainable lithium prices might look like.

“Conceptually, we’ve always thought of marginal cost and the US$600 per tonne range for spodumene, and around US$10,000 a tonne for carbonate,” Ortiz said. “That probably moves up as we’re starting to see more new entrants enter the space, so maybe that moves up 10 to 20 percent or so over time.”

But the market will need much higher incentive prices to bring all this capacity to fruition.

“I think it’s important to remain balanced across the portfolio, and have exposure to both carbonate and hydroxide,” he during the conference discussion. “These prices are probably going to remain elevated for the next 12 months or so, at least in our view.”

With financings in the lithium market picking up pace this past year, a new trend has been the rise of special purpose acquisition companies (SPACs). A SPAC is a publicly traded company created for the purpose of acquiring or merging with an existing company.

“I think the SPAC phenomenon is here to stay. We will see some ups and downs, and there might be some temporary hiccups, but it’s a great tool,” Ichilov said. “It offers an opportunity for projects to have a clear path all the way into construction, commissioning, production, which is very, very important, as opposed to perhaps the multi-stage gradual evolutionary path that we know in our mining and metals business. So it’s definitely a good, viable option.”

For his part, Ortiz believes SPACs are a great tool if practiced properly.

“I think some of them are more on the speculative side than others, and I think some of them are similar to just companies in general, that they have a pretty clear path to cash flow and to monetization,” he said. “I think it’s a great addition, and it’s a great provider of capital, but even beyond SPACs, I think just the strength of the equity markets has been fantastic for lithium producers and developers.”

Lithium market risks for investors to watch

Commenting on risks investors have to face in today’s lithium market, the experts shared their insights on the emergence of resource nationalism.

“We mitigate (risk) through diversification and through making sure that for every product line in every supply chain, we can provide our customers from various jurisdictions, various producers,” Ichilev said.

He added that the resource nationalism that lithium and other energy markets will face in this decade is not so much the ‘old school’ type of hogging the materials and not sharing them.

“There is a bit of, ‘I won’t buy from you’ type of resource nationalism, but most of it is more along the — I call it ‘fear of missing out’ nationalism — we see a move to make sure that you can secure these supply chains, which will allow you not to miss out.”

In the past, when thinking about resource nationalism, it was about taxes, ensuring operations don’t get shut down and jobs are kept, all of which are related to sustainability, Fung said.

“This is a big theme that has come out of COVID, as we all know, and so from that perspective, I think that is still somewhat of a risk, but it’s a necessary risk. And we can understand that from the government’s perspective,” she said at the Fastmarkets event.

Commenting on the role of government when trying to compete with countries such as China, Ortiz said beyond incentives for the industry, probably the biggest positive action from a government would be speeding up permitting. “And that doesn’t have to be mines, it can just be across the ecosystem,” he said.

For Ichilov, the government’s role is not necessarily in one specific iteration of the whole process. “It’s sort of a mega-facilitator and supporter, whether it’s through the right steps in the capital market, the right regulatory steps to some extent and critical periods absorbing some of the early stage risks of bringing up supply into the market … and it’s also very dynamic,” he said.

Another key topic when looking at investing in the lithium market today is environmental, social and governance (ESG) credentials.

“ESG is absolutely key to our investment process,” Fung said. “And it’s not just because it’s nice to have ESG and sustainability to us. It’s all about business resilience.”

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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