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At the end of 2013, analysts and investors weren’t holding their breath for big changes in the lithium space. However, as many investors know, it turned out to be quite an interesting year for lithium.
However, as market participants know, it turned out to be quite an exciting year for the lithium space, thanks to Tesla Motors (NASDAQ:TSLA). Chris Berry, president of House Mountain Partners and co-editor of the Disruptive Discoveries Journal, told Lithium Investing News that the metal was “a pleasant diversion from the general downward trend in metal prices” in 2014 given the resilience of its price.
Tesla’s gigafactory announcement
At the end of 2013, Daniela Desormeaux, economist and general manager at signumBOX, saw lithium demand rising on the back of an increased need for batteries — but not in 2014. She also said that although additional demand from the electrical vehicle space might spur things along, other battery markets were bigger.
However, that was before Tesla Motors’ plans for a lithium-ion battery gigafactory started gaining traction. The lithium market — along with the graphite and cobalt markets — was all abuzz as analysts and market watchers initially suggested that the factory could eat up as much as 15,000 to 25,000 tons of lithium carbonate per year once at full capacity, putting a dent in a forecast oversupply.
More recently, analyst Simon Moores has suggested that demand from the factory could go beyond eating into a surplus and could actually cause a shortage. With construction at the factory a year ahead of schedule, lithium companies are watching developments at Tesla now more than ever.
Jumping juniors
Berry stated that while 2014 was “business as usual” for producers such as Rockwood Holdings (NYSE:ROC) and SQM (NYSE:SQM), junior lithium companies were “given a new lease on life” thanks to the buzz surrounding Tesla.
More specifically, several juniors with projects in Nevada saw their share prices spike when Tesla announced that it will build its gigafactory in the state. Though Berry has previously stated that Rockwood Holdings — also located in Nevada — would be “an obvious choice as a supplier” for Tesla, others, such as Simon Moores, have suggested that the company will need more raw materials than it can get its hands on. That certainly bodes well for juniors.
Other key events
While Tesla’s gigafactory certainly took center stage in the lithium space this year, there were definitely a few other important events that are worth recounting:
- POSCO: Berry identified Korean steelmaker POSCO’s (NYSE:PKX) foray into the lithium space as fairly big news. “I think it’s significant when a major global steel producer attempts to muscle into a field like lithium production — not to mention the fact that this is quite different from POSCO’s traditional business,” the analyst said. In addition to steelmaking, POSCO also works to develop advanced materials processes, and is developing a new extraction technology for lithium brines. Through an agreement with Lithium Americas (TSX:LAC), a pilot plant using the technology has been delivered to Lithium Americas’ Cauchari-Olaroz project in Argentina and will be inaugurated in December.
- RB Energy: On the down side, lithium investors will no doubt recall the fall of RB Energy (TSX:RBI). Shortly after the company overcame a number of obstacles to reach its first commercial shipment of lithium carbonate from its Quebec plant, RB was forced to shutter its doors after it failed to secure additional funding to maintain its operations. The company’s share price quickly declined following the unfortunate turn of events. However, RB Energy CEO Richard Clark remains positive, and recently said, “the plan is to get the banks paid off, get the trade creditors settled and get those people back to work — then we can start producing again.”
- Prices rising: FMC (NYSE:FMC) announced plans to raise prices by 10 percent for a number of its lithium products, causing some to call for a near-term shortage in the space. In contrast, a report from TRU Group states that lithium carbonate prices were 2.3 percent lower for the year based on monthly export data from Chile.
- Albemarle/Rockwood acquisition:Special chemicals company Albemarle (NYSE:ALB) made a move to acquire Rockwood Holdings — one of the top three lithium producers in the world — for a cool $6.2 billion. The companies are calling the deal a “commitment to drive sustainable growth, creating one of the world’s premier specialty chemicals companies.” The merger was approved by shareholders in November, and is expected to close in the first quarter of 2015.
Reflecting on 2014
Looking back at 2014, Berry said that things didn’t turn out quite as he’d expected. Berry explained that he was “too pessimistic” at the outset, stating, “I anticipated more lithium juniors either shifting their focus to other commodities or merging to survive. Instead, the consolidation occurred in the majors with Albemarle’s takeout of Rockwood.”
However, Berry was accurate in terms of his predictions regarding lithium prices and demand. “I was correct in that lithium demand has stayed resilient (as has pricing), with demand growth in the 8-percent-per-annum range,” he said, adding that he expects the trend to continue and that it is “one of the main reasons” he remains bullish on lithium.
Certainly, lithium investors will be hoping that Berry is right. Stay tuned for our outlook for next year.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.