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What happened to lithium in Q2 2017? Our lithium market update outlines key market developments and explores what could happen moving forward.
With the popularity of electric vehicles (EVs) growing at an unstoppable speed, lithium continues to be a hot commodity in 2017.
Demand for the metal is forecast to triple by 2025, and according to consultancy CRU, prices for lithium carbonate, used in lithium-ion battery cathodes, have more than doubled since 2015. The rapidly unfolding EV revolution is set to boost prices even higher.
But how did the metal perform in the second quarter of 2017, and what’s ahead for lithium in the near term? Read on for an overview of the factors that impacted the lithium market in Q2, plus a look at what investors should watch for the rest of the year.
Lithium market update: Supply and demand
For the past three years, Tesla (NASDAQ:TSLA) has brought much excitement to the lithium space. The company is aiming to raise its annual EV output to 500,000 cars by 2018, and is mass producing lithium-ion batteries to power them.
But as many lithium experts say, Tesla is a story and not the only story. In fact, China is the leading player in the EV space, in part due to environmental pressure. In 2016, 507,000 EVs and plug-in hybrid electric cars were sold in the Asian country, a 53-percent increase from 2015.
Europe and India are also forecast to increase their annual EV sales, showing that growth in the electric car space is accelerating faster than expected. Most recently, analysts at UBS (NYSE:UBS) raised their forecast for global EV sales in 2021 to 3.1 million units from 2.5 million units, and to 14.2 million units in 2025.
“We’ve long argued that Tesla as an EV company is not truly disruptive, in that legacy carmakers will eventually wake up and offer fully electric vehicles by the early 2020s,” Barclays (LSE:BARC) analyst Brian Johnson wrote in a report.
It seems that is already happening. Earlier this month, Volkswagen (FWB:VOW), Volvo (STO:VOLV) and BMW (ETR:BMW) announced they will electrify most of their car models by the end of the decade.
According to Benchmark Mineral Mineral Intelligence, surging demand for EVs is expected to push demand for lithium-ion batteries above 400 GWh by 2025. And as a result, most analysts expect global lithium output to reach 400,000 to 500,000 tonnes by the same year.
“There’s much more consensus on demand; we’re no longer even debating demand. We’re shifting to supply and whether, as an industry, we can deliver,” John Kanellitsas, vice chairman of Lithium Americas (TSX:LAC), told the Financial Times.
Indeed, this month worries that Tesla might not be able to deliver its Model 3 on time increased after a battery shortfall impacted the company’s half-year targets.
“It is our expectation that the lithium industry will struggle to keep up with demand between now and 2021. [We don’t expect an] oversupply [in the market],” said Benchmark Mineral Intelligence Managing Director Simon Moores.
Other analysts predict that supply will not be a challenge due to lithium’s abundance in the Earth’s crust. CRU analysts, for example, expect supply to ramp up and are calling for the market to be in surplus from 2018 onwards.
But UBS analysts have noted that “while all battery materials are abundant, mining and refining capacity could represent a bottle neck when EV demand takes off, even if only temporary.” After all, bringing projects into the lithium market is not always easy, as it can take years for a new mine to produce at full speed.
“Demand is growing really fast and the projects in the pipeline have a slow maturity process,” Eduardo Bitran, executive vice president of Chilean development agency Corfo, told Bloomberg. “So it is possible that the market is quite tight over the next seven years.”
Similarly, lithium expert Joe Lowry of Global Lithium said that most required lithium investments needs to be made by 2022 to 2023 to allow for ramp-up times. “Battery makers need to write checks,” he said recently on Twitter.
Lithium market update: What’s ahead?
Getting a look at lithium prices isn’t easy, and that can make it difficult for investors who are looking to assess the viability of a given project. Lithium products aren’t traded on the public market, and major producers don’t often give out stats.
According to Lowry, moving into Q3 pricing in China is going up rather than down — back in the upper teens for lithium carbonate and slightly higher for hydroxide, both considered battery-grade lithium.
“My ‘new normal’ prices are $12-14/kg range for carbonate pricing and $18-22/kg for hydroxide,” Lowry said in his lithium Halftime report.
He identified Benchmark Mineral Intelligence as a good place to check for price trends. According to the research firm, lithium carbonate and hydroxide prices will remain high for the medium term.
Analysts have said that the average global price of lithium carbonate rose by 9 percent in Q2, “led by pressures into the Asian battery sector in particular.”
They expect the ramp up of new spodumene operations in Western Australia to ease some of the price pressure, but “the introduction of major new carbonate volumes by the end of 2017 remains unlikely and will see pricing remain strong into Q3.”
Chart via Benchmark Minerals Intelligence.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.