Lithium Outlook 2017: Analysts Weigh In

The lithium industry has blossomed significantly over the last couple of years, and 2016 showed no signs of it slowing down.
In particular, lithium has unquestionably emerged as a vital component in the battery supply, notably in electric vehicles (among other things). With that in mind, 2017 is poised to be another interesting year for the market.
Of note, Luke Kissam, CEO of Albemarle (NYSE:ALB) said in an interview with the Financial Times that lithium demand is expected to soar by 20,000 tons per year until 2021. Lithium supply is also poised to take off as a number of big projects are expected to start up.
The Investing News Network (INN) reached out to Joe Lowry of Global Lithium, Chris Berry of House Mountain Partners and the Disruptive Discoveries Journal, and Andrew Miller of Benchmark Mineral Intelligence on what to look for in 2017.
While the lithium outlook 2017 is exciting, it’s worthwhile to first look at what impacted the lithium industry in 2016.

2016 lithium themes: price strength and supply crunch

Looking back at the lithium market in 2016, Lowry said that it developed as he anticipated. In particular, he noted supply continued to be short and prices in China remained high, “within a fairly narrow price brand,” although prices outside of China moved up significantly.
“SQM (NYSE:SQM)–as the leader in lithium carbonate supply to the battery industry–best represents what is happening to price outside China,” he said.  
Lowry pointed out that SQM’s lithium carbonate supply has gone up from $6/kg in 2015 to $12/kg in the third quarter of 2016. He commented that “with each passing quarter,” a new normal for lithium carbonate prfficing outside of China is established. 
Berry also expressed his thoughts on the lithium price, saying that the “surprising price strength really stood out” in 2016.
In that regard, Berry said the question that everyone should be asking is “what is the new normal for lithium chemicals pricing?”
Miller echoed similar sentiments, saying Benchmark thought there was going to be some tightness in the market, but not quite the huge jump in prices that were seen.
As it currently stands, it’s no secret that lithium demand outpaces its supply, as noted above. Prices in China, according to Platts, soared to $25,000 per metric ton in 2016; long term contract prices of $4,000-$7,000 metric tons are indicative of its undersupply.

Lithium outlook 2017: supply/demand on the rise?

Moving forward on what to expect in 2017, in simple terms Lowry said it “will be interesting.”
“Demand should grow by at least 15,000-20,000 metric tons,” he suggested.
Simon Moores, managing director of Benchmark Mineral Intelligence, also echoed sentiments that lithium demand will grow significantly between now and 2020. During Benchmark’s World Tour 2016 stop in Vancouver, he suggested 100,000-120,000 tons of lithium will be required to keep balance, most of which he said will come from existing producers.
On that note, Miller said not to expect much to happen in the lithium sector in the first half of 2017. He added Benchmark doesn’t really see where new supplies are going to come from, but that demand is going to continue growing here on out.
“In the later half of 2017, with some of the battery producers trying to secure volumes for the capacity expansions, we see that being a real turning point for the market and for battery demand,” he said. “Effectively, you’re not going to see a huge amount of new supply coming into the market.”
In terms of new lithium supply, Lowry said hopefully the Mt. Cattlin (owned by Galaxy Resources (ASX:GXY)), and Mt. Marion (jointly owned by Neometals (ASX:NMT), Mineral Resources (ASX:MIN) and Jiangxi Gangfeng Lithium) projects will have smooth startups, having missed their 2016 startup dates. Lowry also noted Albemarle’s LaNegra 2 will begin producing in 2017, but won’t make a big market impact until 2018.
“These projects should help ease the upward price pressure but you should not expect a rapid drop in price,” Lowry said.

Still, with growing demand for lithium it’s clear that lithium supply will be able to keep up with it–just not quite in 2017.
With that in mind, electric vehicles will heavily come into play in 2017–and in the coming years–according to Moores, and lithium-ion megafactories will also continue growing. Moores added that 75 percent of these factories are–or will be–coming from China.
“Lithium, a key input into batteries, is the obvious beneficiary of the move to electric vehicles as the mining industry currently appears unlikely to be able to satisfy demand,” analysts at Investec said in a report, according to the Financial Times.
Factoring in the lithium price, Berry said that prices will remain robust next year.
“I think a long-term price of LCE is comfortably in the $10,000 per ton range, and you may see prices start to revert somewhat in the second half of 2017,” Berry added.
On the contrary, Miller said they’re waiting to see what will happen with the Chinese subsidy, as well as electric vehicles, “which could have a big impact on the price.”

Investor takeaway

While supply is expected to ramp up in 2017, Berry said investors should be paying attention to what the optimal energy metals portfolio looks like, or consists of. He added that lithium is only one part of it, and that understanding the full supply chain will become important as time goes on.
“A clear understanding of materials science, and in particular battery materials science will be vital to your strategy,” he said.
Lowry said that battery producers will look to control their supply chains, so investors should also watch for direct investments from major battery companies in lithium suppliers.
Similarly, Miller said Benchmark quite often gets asked on whether or not the lithium market will be flooded with new raw material, adding they have grown ‘wary’ of that potentially being the case earlier in the year.
“The question became if this is going to be a more hugely oversupplied market by 2017, and one thing that’s an upsize to people is these projects aren’t easy to bring onto the market,” he noted.
With that in mind, investors should be mindful that it will take time for the supply to meet the lithium sector’s growing demand.
“There’s more steps and more processing that has to take place,” Milelr said. “For that reason we think the industry’s going to have an issue with expanding its supplies for the next year.”
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Galaxy Resources is a client of the Investing News Network. This article is not paid for content.
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.