Lithium Supply and Markets: Analysts Share Their Thoughts

Day one of the eighth annual Lithium Supply and Markets Conference kicked off with a number of presentations, including a panel discussion on the state of the lithium market.
Moderated by Chris Berry of House Mountain Partners and the Disruptive Discoveries Journal, topics discussed included lithium prices, supply and demand, and the true importance of Tesla Motors (NASDAQ:TSLA) for the market.
Other participants in the panel included Joe Lowry of Global Lithium, Jon Hykawy, president and director of Stormcrow Capital, Anthony Tse, managing director of Galaxy Resources (ASX:GXY), Luis Saenz, CEO of Li3 Energy (OTCMKTS:LIEG) and John Kanellitsis, president of Lithium Americas (TSX:LAC)
All in all, some interesting views were brought to the table, some of which might not be what those familiar with the space would expect.
Here’s a few brief points from the discussion:

It’s different this time

As Chris Berry stated, the four most dangerous words in investing are ‘it’s different this time.’ But is it really different for the lithium market this time?

• Lowry stated “I do think it’s different this time.” While he noted that there have been “clear false starts” in the past, he agreed that we are now at an inflection point for electric transportation.

• Saenz agreed that this time is different for the lithium market, but added that he was “concerned in the sense that there is a lot of hype.”

• Hykawy threw in a disagreement. While he does see lithium demand and battery use growing, he was hesitant to make a definitive call over the long term. “I don’t think you can anticipate, however much that demand grows, that you’re going to see long term prices that are historically high and continue to grow,” he said. “I think we have to return to a more stable base.” 

On Tesla

• Hykawy praised Tesla for what the company has done for the battery industry, the electric vehicle space and lithium demand. However, he suggested that batteries might be “a little too limiting” a concept for electric vehicles, and that there will be more evolution in the design of electric cars moving forward.

• Tse agreed that Tesla has been a boon for the lithium industry, and that the design of electric vehicles will continue to evolve. He also stressed that it’s not all about Tesla when it comes to lithium demand—the electric vehicle maker makes up only about two percent of lithium demand globally.

Lithium prices

Of course, lithium is not an exchange-traded commodity, making it difficult to track pricing trends, or even to obtain pricing information. Here’s some of what analysts on the panel had to say about navigating the opaque lithium market:

• Lowry pointed out that there isn’t really a lithium spot market. “There’s a China price, and there’s a price outside of China,” he said, adding that more product will move at higher prices this year than many in the industry like to talk about. He believes that prices are too high and will moderate over the long term inside of China. But outside of China, he sees prices for lithium products going into double digits and staying there into 2025, noting, among other things, that most lithium hydroxide production capacity is inside of China while most demand is outside of the country.

• Saenz stated that Li3 sticks with conservative price estimates when looking at its projects. “We’ve always used $5,000 as the price,” he said.

• Kanellitsis said that Lithium Americas uses $7,500 as a long term price in its internal models.

• Tse was skeptical about new lithium supply coming online in time to meet growing demand. “One new project needs to come online at 100 percent capacity, every single year, for the next five years, in order to achieve a balance,” he said, “and that in my view is not going to be happening.” Tse put his range of estimates for lithium products between $12,000—$13,000 per tonne.

• Hykawy took a look at a few commodity price rises in recent history, namely, the run in uranium prices in 2007-2008, and the run up in rare earths prices in 2010 and 2011. Interestingly, he noted uranium supply and demand were fairly steady when prices spiked, and that rare earth prices spiked even inside of China in 2011, despite there arguably being an excess of supply due to stringent export quotas. Why? According to Hykawy, even though uranium and rare earths are not exchange traded, investors found a way to speculate on prices by buying and storing physical product. Of course, that created an overhang supply, which would come back to the market at some point. While he doesn’t believe that will be as much of a danger for lithium as it was for rare earths, given growing demand, it’s certainly a potential factor worth considering.

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