COMMODITY FOCUS: LITHIUM
Lithium stocks have been subjected to drops in value as plans to increase supply in Chile and forecast drops in seaborne spot prices for the commodity cause a wave of uncertainty. However, those in the industry believe bearish analysis far underestimates current and future demand.
A BEARISH outlook for lithium from Morgan Stanley has drawn criticism from industry, after the analyst group predicted a 45 per cent fall in lithium prices by 2021.
Morgan Stanley was critical of Chile-based lithium producer SQM’s expansion plans and believed oversupply would eventually decrease spot prices in the global market.
“A host of lithium projects and expansion plans — including increased production by low-cost Chile brine operator SQM — threatens to add 500,000 tonnes (t) to global lithium raw material supply by 2025, swamping forecast demand growth,” Morgan Stanley said.
SQM hit back at the prediction in its Q4 earnings report in March, saying its production past 2019 would be driven by global demand and the company was not out to cause oversupply issues.
It said it would only commit to spending an initial $US170 million to expand its annual production capacity of lithium carbonate from 48,000 tonnes (t) to 70,000t this year, and then to 100,000t by 2019.
“We will evaluate the timing for future expansions in the Salar de Atacama based on market conditions,” SQM chief executive Patricio de Solminihac said.
Morgan Stanley analysts expect lithium carbonate prices to peak at about $US13,000/t this year, before declining to about $US7000/t by 2021.
They have also predicted a surplus of 190,000t in 2022.
“We assume that the large premium that has opened up since 2015 between China spot prices and Chile contract prices will endure only as long as the market remains tight – once large surpluses build, global prices will realign.
“China’s lithium reserves are estimated at 3.2 million tonnes (mt), and while exploitation has been constrained to date by high magnesium content in brines and lack of hard rock development, this is evolving.
“Battery makers we have spoken to in China report that domestic supply is improving ‘in leaps and bounds’.
“We see significant upside risk to China’s domestic supply by 2025 against our base-case forecast, and expect costs to fall over that time period.”
However, Australian near-term producer Pilbara Minerals disagrees with the Morgan Stanley report.
“I am firmly of the view that everyone, including Morgan Stanley, is grossly underestimating how quickly the market is moving on the demand side,” Pilbara Minerals Ken Brinsden said at a mining conference in Florida.
Research group Benchmark Mineral Intelligence managing director Simon Moores, through Twitter, labelled the Morgan Stanley forecast “ridiculous”.
“When you understand even the basics of lithium, cathode and battery plants, and auto majors plans you realise the Morgan Stanley scenario has a 1 per cent chance of happening,” he said.
Australia is already the world’s largest lithium producer, accounting for about 60 per cent of production with several new hard rock lithium mines and processing facilities under development.
During 2017, it was also the top destination for lithium exploration with 26 per cent of exploration spending globally.
Current production comes from the world’s largest lithium mine, Tianqi Lithium/ Albermarle’s Greenbushes; Galaxy Resources’ Mt Cattlin; Mineral Resources/Jianxi Ganfeng Lithium’s Mt Marion, and Tawana Resources/ AMAL’s Bald Hill, all in WA.
Two more mines are expected to come online this year – the Pilgangoora projects being developed by Altura Mining and Pilbara Minerals.
Currently, these projects are, or will, produce spodumene concentrate before being shipped to offshore refineries – the first stage in the lithium processing chain.
In its February report A lithium industry
in Australia, the Association of Mining and Exploration Companies (AMEC) said there were substantial value-adding opportunities along the transformation chain from mineral extraction to end-product lithium, calling for further downstream processing and refinement of concentrates before export.
“As a result of the chemistry of lithium in concentrate, the act of processing concentrate further into battery grade product delivers a more than six-fold efficiency in transport and logistics,” the report stated.
“Accordingly, by building this processing closer to the mine, value is also created by significant cost savings.”
So far, the only lithium hydroxide processing plant in development is Tianqi Lithium’s $700m Kwinana facility in WA, with Stage 1 expected for completion in late 2019.
“While a current hub location is effectively emerging in Kwinana, it is interesting to imagine other possible locations,” AMEC said.
“As an example for regional Australia, an estimate of the cost of construction of a production facility in the Pilbara would be in the order of 1.3 times that of an existing industrial hub (extrapolating from Regional Development Australia report on the cost of doing business in the Pilbara).
“Accordingly, a target construction cost of a 20,000 kilotonnes per annum (ktpa) facility would be in the order of $US350m.
“This cost per ktpa would be on a par with large plants in Argentina and Bolivia, and well below smaller scale plants in Argentina and Finland.”
Another factor supporting further value for local downstream facilities is Australia’s accessibility to 13 out of the 14 typical reagents used in the next phase of processing, which amount to about 40 per cent of plant operating costs.
Only Soda Ash is currently imported since the closure of Penrice’s Osborne plant in 2013.
“The evidence indicates that, pending detailed cost and risk analysis, any sufficiently large battery chemical plant in Australia will be globally cost effective, and would likely have more predictable per tonne operating costs (compared to brine-based lithium) due to the dependability of hard-rock supply,” the report concluded.
“As a result of the chemistry of lithium in concentrate, the act of processing concentrate further into battery grade product delivers a more than six-fold efficiency in transport and logistics.” “I am firmly of the view that everyone, including Morgan Stanley, is grossly underestimating how quickly the market is moving on the demand side.”
Albemarle’s Silver Lake lithium brine project in Nevada, USA.
Altura Mining’s Pilgangoora hard rock lithium project is targeting first sales in Q2 this year.