Lithium Trends 2020: Supply Chain Resilience Takes Center Stage

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In a year full of market uncertainty brought by the COVID-19 pandemic, the turn to green energy policies and agendas saw interest in metals such as lithium increase.

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 2020, from the main supply and demand dynamics to how analysts thought the metal performed in each quarter of the year.

Lithium trends Q1 2020: COVID-19 hits the world

During Q1, the impact of COVID-19 dominated market dynamics for every commodity, with March bringing Wall Street’s worst day of trading since 1987.

Benchmark Mineral Intelligence’s Andrew Miller told INN at the time that there was a limited impact on lithium in Q1; the bigger risk was the prevailing demand outlook for the rest of the year.

“There will be more demand pressures outside China in Q2, but from a battery perspective, China already plays a major role, so will likely play a big role in propping up the supply chain in the coming months,” Miller explained in a Q1 interview.

He added that his expectation was that weaker battery consumption and slower diversification of electric vehicle (EV) consumption outside of the Asian country would impact the 2020 lithium demand outlook.

“In the near term this will continue to impact prices and stunt efforts to work through backlogs in the supply chain,” Miller said.

William Adams of Fastmarkets thought Q1 lithium demand would likely prove poor, but expected that actual demand might not be as bad as apparent demand.

“We expect demand will start to recover later in Q2 and more so in the second half,” he said.

George Heppel of CRU Group believed prices were unlikely to fall further in spite of anticipated lower demand. According to his firm, Chinese carbonate spot prices were trading in the range of 44 to 48 renminbi per kilogram of lithium carbonate equivalent (around US$6.20 to US$6.80).

“However, there is a strong chance that contract prices will be negotiated down in the coming months.”

Looking over to the supply side of the lithium story in Q1, disruptions and expansion plan revisions due to government and company measures to contain the outbreak were a common theme.

In Q1, Roskill estimates approximately US$160 million of production value was lost at the mine level on a lithium carbonate equivalent basis on the back of either complete shutdowns or production scalebacks.

And the rest of the year was not looking any better, according to the firm, with similar losses of value expected to happen again throughout Q2, Q3 and into Q4 — they could collectively sum to between US$400 million and US$650 million of lost value.

“Granted, the high level of uncertainty around the potential of global economic recovery and effectiveness of planned stimulus will dictate what does eventually play out,” Jake Fraser of Roskill explained to INN in an April interview.

In terms of how the coronavirus would affect the EV story, Fraser forecast significant short-, medium- and long-term impacts from COVID-19.

Prior to the virus outbreak, Roskill’s 2020 base-case forecast was a 60 percent year-on-year increase in EV sales compared to 2019, from 2 million to around 3.2 million EVs in 2020.

“We now forecast EV sales to be between 30 to 45 percent lower than (previously expected), with sales of approximately 1.8 million EVs under the worst-case six month lockdown scenario,” he said.

Despite the headwinds faced by the sector, battery metals expert Chris Berry of House Mountain Partners said the EV thematic could be delayed, but not denied.

“Globally, OEMs have committed hundreds of billions of dollars to electrify their fleets in the coming decade,” he said. “This is too large a sum to walk away from.”

Lithium trends Q2 2020: Prices remain low

The second quarter of 2020 was also full of uncertainty on the back of the coronavirus pandemic, with prices for lithium remaining at low levels.

Speaking at the time, Benchmark’s Miller said the disease had created a prolonged low-price environment at a time when the backlog in supply was expected to reduce.

The expert said prices continued to edge downward in Q2, and believed it was likely the space would see continued convergence at lower price levels throughout the rest of the year.

“The slowdown in demand through H1 meant that excess supplies continued; however, there remains a premium on battery-grade pricing due to more restricted availability,” Miller told INN in Q2.

“Although consumers are pushing for lower prices, there is a realization that prices cannot fall much further, and that current price levels won’t encourage investment at the rate required to meet future demand growth.”

Roskill was also expecting prices to remain flat or in decline for an extended period of time.

“That being said, significant price disparity does remain between buying regions, most clearly reflective in China versus ex-China markets for both hydroxide and carbonate products,” Fraser told INN.

“Buying schedules and order placements from cathode customers have transitioned from months or years in advance down to weeks in some cases, he added. “(That is) a pattern perhaps likely to continue throughout 2020 into early 2021.”

Roskill was expecting a sustained market-wide uptick in pricing sometime in H1 2022.

When looking at demand dynamics, most analysts agreed it was highly unlikely that demand for lithium would return to pre-COVID-19 levels in 2020.

“However, lithium chemical demand from end-use sectors is still expected to increase year-on-year to around 280,000 tonnes lithium carbonate equivalent,” Fraser commented in a conversation with INN. “(That is) owing to larger battery packs being installed in EV models and the EV sector itself forecast to see 10 percent year-on-year growth in sales.”

Adams was also expecting demand to be lower than in 2019, but said it could rebound sharply in 2021.

“Especially as a lot of the government measures to combat the fallout from COVID-19 are aimed at EVs, and green projects that will boost demand for lithium-ion batteries for use in EVs and energy storage systems,” he said. “We expect the rest of 2020 will see demand rebound.”

Looking at the supply side, Adams explained that as of Q2, physical supply had not been directly affected that much. Some producers reacted to weak demand and prices by reducing their production, while others built out their inventory.

“What has been affected is that a lot of development/expansion work has been put on hold and the low price environment has made it more difficult for some juniors to raise funds, but not all,” he said, mentioning Infinity Lithium (ASX:INF) as an example.

“These delays means that there is a greater risk of supply shortages in the period after 2024/2025 and during the second half of the decade.”

Lithium trends Q3 2020: Battery Day steals headlines

By Q3, COVID-19 had had a serious impact on downstream demand, putting downward pressure on pricing. That factor was compounded by the sustained oversupply of lithium in the market, George Miller of Benchmark told INN.

“This trend followed from Q2 2020 through to Q3, largely as expected, and continued to exert similar downward pressure on prices,” he said.

The Benchmark Global Weighted Average Lithium Carbonate Price fell 7.1 percent in Q3, close to its 7.4 percent drop the quarter before. The equivalent Benchmark Lithium Hydroxide Price was stable across Q3; a more limited supply structure meant market pricing was more resilient to downward pressure.

“This was consistent with its performance earlier in the year, where the original impact of COVID-19 on prices had been more limited relative to carbonate — recording a 5.5 percent fall in Q2 2020,” Miller said.

During Q3, from a holistic perspective, both spot and contract prices continued to behave according to the expected declining trend throughout 2020, Fraser said at the time.

“That being said, domestically within China there has been evidence of prices firming in recent months compared to that of Q1,” he said. “This has resulted from a rise in customer enquiries for product in future periods, largely from the battery sector. This could be an early indication of behaviors being redirected from being inventory conscious to buying in advance.”

However, Roskill wasn’t anticipating a material rise in spot pricing in China until the second half of 2021 or first half of 2022, owing to significant stocks overweighting the market.

Despite being just one part of the EV story, all eyes were on Tesla (NASDAQ:TSLA) at the end of September, as the lithium-ion battery took center stage during the company’s long-awaited Battery Day.

Sourcing lithium from clay, building a cathode plant and expanding its battery cell capacity to 3 TWh by 2030 were just a few of the announcements Tesla made as it outlined plans to achieve its main goal — producing an affordable US$25,000 EV in the next three years.

Talking on Battery Day about sourcing lithium specifically, CEO Elon Musk said Tesla has acquired the rights to lithium-rich clay deposits in Nevada, and said the company has found a way to mine it in a sustainable and simple way — using table salt and water.

“Tesla’s plans to mine its own lithium from clay using only water and table salt … struck me as overly simplistic and given that Lithium Americas (TSX:LAC,NYSE:LAC), in particular, has spent years cracking the code on high-purity lithium from clay, Tesla’s announcement here was hard to take seriously without much more detailed information,” said Berry of House Mountain Partners.

For the expert, Tesla won’t realistically be mining its own lithium until several years from now.

Speaking with INN after the event, Miller said one of the more credible announcements Tesla made was its involvement in refining, giving the company some control over its input chemicals.

“If you’re refining those chemicals yourself, presumably you can meet your exact specifications rather than relying on a group of other companies that are also trying to refine for a number of other converter consumers out there,” he said. “It also gives them the ability to perhaps source from various different areas for its raw materials.”

That said, Miller doesn’t expect to see Tesla converting its own lithium before 2023 to 2024.

Lithium trends Q4 2020: Deals and long-term contracts

As the last quarter of the year kicked off, there was no shortage of news in the lithium space.

In Australia, Pilbara Minerals (ASX:PLS,OTC Pink:PILBF), which is developing the Pilgangoora lithium-tantalum project, acquired neighboring spodumene producer Altura Mining for $175 million, pointing to further consolidation in the sector. Following a tough environment that hit many companies around the globe, Altura entered receivership at the end of October, although its shares were delisted in August.

Any consolidation of Australia’s spodumene operations will set the blueprint for the supply outlook for the next decade and beyond, Benchmark Mineral Intelligence analysts said in a note.

“While much of the investment community has been hesitant to invest in the lithium space in recent years, primarily due to the low price environment, those that act now will like see themselves the dominant force for the next growth cycle, capitalising on the rapidly growing industry and move to higher pricing,” they added in the document.

Also in the fourth quarter, debt-troubled Tianqi Lithium (SZSE:002466) secured $1.4 billion from gold miner IGO (ASX:IGO). The Perth-based company will take a 49 percent stake in Tianqi Lithium Energy Australia, giving it 24.99 percent ownership of Greenbushes — the world’s largest hard-rock lithium mine — and a 49 percent holding in Tianqi’s Kwinana lithium processing plant, both in Western Australia.

In Canada, top producer Livent (NYSE:LTHM) is reportedly looking to form a joint venture with Pallinghurst Group to acquire Quebec-focused Nemaska Lithium, another company that has faced troubles in recent years.

Another trend that seems to continue in lithium is long-term contracts, with SQM (NYSE:SQM) signing an eight year deal to supply South Korean battery maker LG Energy Solution.

Interestingly, despite the uncertainty brought by COVID-19 to a sector that has seen prices decline and supply increase, lithium stocks, from producers to many juniors, have increased year-to-date, showing investor optimism for what’s ahead in the space.

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

Editorial Disclosure: 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.