Lithium Trends 2019: Declining Prices Shake the Market

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It was another tough year for lithium, with most market watchers focused on declining prices and developments on the supply side. 

But what were the major trends in the lithium market? Here, the Investing News Network (INN) looks back at what happened in the space, including major news, deals and announcements.

Read on for an overview of the factors that impacted the lithium market in 2019, from the main supply and demand dynamics to how analysts thought the metal performed in each quarter of the year.

Lithium trends Q1: Supply concerns and declining prices

During the first three months of the year, top lithium producers released their quarterly and yearly results, with all pointing out that demand for lithium is getting stronger.

With SQM (NYSE:SQM) and most other majors planning for between 800,000 and 1 million tonnes of lithium carbonate equivalent demand by 2025, battery metals expert Chris Berry of House Mountain Partners told INN that it is going to be tough for the industry to get to that level.

“Broadly speaking, if there is a bullish takeaway from the earning season, (it’s) that the demand is still there despite some of the challenges we have seen on the pricing side,” he said at this year’s Prospectors and Developers Association of Canada convention in March.

Speaking about how the market performed in the first quarter, Fastmarkets’ head of base metals and battery research, William Adams, said the global lithium market was stable to slightly weaker during the first few months of the year.

“(That is due to) the sharp increase in production that we started to see last year, with increased mine output in Australia and product output in China,” he said.

During Q1, supply concerns and ramp-up issues were another topic of discussion in the lithium space — difficulties that came as no surprise to lithium investors.

In February, Quebec-focused Nemaska Lithium (TSX:NMX,OTCQX:NMKEF) made news headlines when it announced a financing shortfall of C$375 million to develop its Whabouchi mine in Canada; the shortfall was due to installation and indirect costs.

“The process of bringing new lithium resources to market is difficult at both a raw material and chemical conversion level. (The market has) seen this in recent expansion efforts from the likes of SQM and Albemarle (NYSE:ALB), so it’s likely development-stage companies will run into similar delays,” Benchmark Mineral Intelligence Head of Price Assessment Andrew Miller told INN at the time.

In positive news for lithium production in Q1, Altura Mining (ASX:AJM,OTC Pink:ALTAF) declared commercial production at its Stage 1 Altura mine and Pilbara Minerals (ASX:PLS,OTC Pink:PILBF) did the same at its Pilgangoora lithium-tantalum project in Western Australia.

Just as the second quarter started, the lithium space saw a major move in the race to secure raw materials between Volkswagen (OTC Pink:VLKAF,FWB:VOW) and Ganfeng (OTC Pink:GNENF,SZSE:002460), a major carmaker and a key lithium producer. The companies signed a memorandum of understanding on long-term lithium supply for battery cells.

During the first three months of the year, the Chinese top lithium producer also made a US$160 million investment to develop the Caucharí-Olaroz project in Argentina, forming a 50/50 joint venture with Lithium Americas (NYSE:LAC,TSX:LAC).

Lithium trends Q2: Deals take center stage

During the second quarter, top producers released their earnings for the first three months of the year, with Chile’s SQM reporting a 30 percent fall due to lower margins in its lithium business.

Argentina-focused Livent (NYSE:LTHM) reported weaker demand for its lithium hydroxide in Q1 due to a slower shift to cathode batteries with higher nickel content. Albemarle also experienced a drop in lithium sales in the first quarter, but it was due to heavy rains.

Despite disappointing prices throughout the quarter, all producers continued to agree on the long-term demand outlook for lithium.

“Lithium carbonate and lithium hydroxide demand is expected to continue to grow at double-digit rates in the future. … Significantly more supply of both products will be needed,” SQM CEO Ricardo Ramos said in a company press release from May.

Also in May, Ganfeng announced a GBP 14.4 million strategic investment in Bacanora Lithium (LSE:BCN) for the development of the Sonora lithium clay project in Mexico.

But one of the most talked about deals of Q2 was diversified company Wesfarmers’ (ASX:WES,OTC Pink:WFAFF) AU$776 million takeover offer for Australian lithium developer Kidman Resources.

Benchmark Mineral Intelligence said at the time that Wesfarmers could be the first in a wave of large diversified conglomerates contemplating serious plays in the battery metals space.

“It also represents the migration of capital towards the energy storage supply chain, from companies that typically operate in larger, established commodity markets,” Benchmark Mineral Intelligence analysts said in a research note.

The development of supply chains and the security of raw materials to feed those value chains were also key trends in the space in Q2. The US, Europe, Australia and Chile have all taken steps to challenge China’s reign — a tough goal and a long journey given current market dynamics.

Unsurprisingly, the downtrend in prices continued to be in the spotlight during the second quarter, with many still wondering whether or not a rebound was on the horizon.

“Are we at the bottom with respect to lithium? That’s really the name of the game right now,” Berry said at the Lithium Supply and Markets conference. “The generalist investors believe in the electric vehicle (EV) theme, but until they get some clarity on when pricing levels out everyone is on the sidelines.”

Almost at the end of the quarter, another big news item hit the lithium space — the announcement that the London Metal Exchange (LME) would join forces with price reporting agency Fastmarkets to develop a lithium futures contract. The move is expected to bring more transparency to lithium prices.

However, producers were quick to state that they felt hesitant about this move, with top producer Albemarle declining to provide price information or contribute to the contract.

Reactions from industry experts after the LME’s announcement were mixed, but most agreed that the 142 year old exchange has a number of key challenges ahead.

In June, China’s EV subsidies cut came into full effect, impacting EV sales, a factor that many say has hurt demand for battery metals across the board.

Lithium trends Q3: Lower prices hurt production plans

It will come as no surprise to any lithium followers that prices continued to be a hot topic in Q3, with market watchers looking to see where they would go next — in particular in the next five years.

In August, analysts at Morgan Stanley (NYSE:MS) released a report saying they expect prices to fall by 30 percent by 2025. The firm sees prices continuing their downtrend to reach US$7,200 per tonne that year as new technologies lower the cost of production and keep the market oversupplied.

“We believe most investors and the sell side underestimate the ability of companies to ramp up production of high-quality material and lower production costs in the medium term,” analysts said.

Also weighing in on prices with a bearish tone during the three month period was CRU Group, which released a note saying it expects lithium prices to trade in the single digits in the long term as cost fundamentals triumph over market hype.

CRU’s spodumene production cost forecast is around US$525 per tonne, or US$8,000 per tonne of lithium carbonate equivalent (LCE).

“Many market players continue to forecast long-run prices for lithium in the mid-teens LCE, citing refinery bottlenecks and the potential for ramp-up delays in the mining and refining sector,” analysts at CRU said. “Based on previous experience in other commodities, CRU finds this argument unconvincing.”

During the third quarter, major producers released fresh quarterly results, with the theme of declining prices being a common denominator.

Despite the not-so-favorable results, top producers are betting on lithium’s long-term fundamentals.

Chile-focused SQM said it is set to invest US$1.33 billion into its operations in Chile and Australia in the next five years, as the miner remains optimistic about the outlook for the battery metal.

“The fundamentals support a vision of significant growth in the coming years,” said SQM Senior Vice President Pablo Altamiras at the time.

Meanwhile, Chinese producer Tianqi (SZSE:002466) has put expansion plans for its lithium hydroxide plant in Western Australia on hold to focus on steady production. Tianqi launched production at its Kwinana chemical facility early in September, with ramp up estimated to take 12 to 18 months.

Looking over to North America, Vancouver-based Lithium Americas increased its expected production capacity for battery-quality lithium at Caucharí-Olaroz to 40,000 tonnes per year for 40 years. The company also announced plans to cut its initial production target at its Thacker Pass project in Nevada from 30,000 tonnes to 20,000 tonnes of lithium carbonate equivalent.

In Canada, shares of Nemaska Lithium jumped after news hit that Pallinghurst Group was contemplating a C$600 million investment in the company to develop the Whabouchi mine in Quebec. Nemaska said in October it hoped to close the deal by the end of the year.

Lithium trends Q4: New decade, new hopes

The last quarter of the year has been busy for lithium companies, with news and deals around the world.

In October, diversified miner Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) found a potentially large source of lithium in California, adding that it could become America’s largest supplier of lithium if it can successfully process the metal at a large scale.

The miner said it will invest US$10 million to build a pilot plant on site to extract the metal from waste rock. The miner is also considering spending another US$50 million during the next phase for an industrial-scale plant with a capacity of up to 5,000 tonnes of lithium carbonate equivalent per year.

In November, investment group Pallinghurst and Traxys outlined plans to invest US$2 billion in mining projects for battery materials, with experts welcoming the news, but emphasizing that the investment needed in the sector to be able to fulfil the demand expected is still 10 times more than that.

In Australia, following a review of operations and due to weak market conditions, Galaxy Resources (ASX:GXY,OTC Pink:GALXF) decided to reduce its lithium output from Mount Cattlin in 2020. Mined material output is forecast to be 40 percent lower next year, but concentrate production is expected to be maintained at 75 percent of the current rate.

During Q4, lithium producers also took steps to respond to the current challenging market. Albemarle started a cost-control program to save over US$100 million over the next two years, while Livent cut its full-year revenue and earnings forecasts, delaying shipping lithium hydroxide to customers until they need it in 2020.

But despite the tough year the battery metal had, many experts and executives continue to believe the next decade will bring positive catalysts for lithium.

For Simon Moores, managing director at Benchmark Mineral Intelligence, the soon-to-start 2020 decade can be defined by the word “revolution.”

“What we’ve had so far is evolution — (the market) has changed so much in the last three to four years,” he said at this year’s Benchmark Minerals Week. “But we haven’t seen anything yet … (in the) 2020s … it’s going to be a completely different world.”

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

Editorial Disclosure: Nemaska Lithium 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.