September 17, 2019
Lithium succumbs to a short-term perfect storm, and may take a while to recoverContact
It seems counter-intuitive that Lithium metal prices and the stock-market value of its main producers should be tanking at the same time as the world is waking up to the scale of the impending transition to energy storage and the speed of the move to electric vehicles.
But after the meteoric rise in the price of the soft, silvery-white metal from 2015 and 2018, we have now seen a bear market in Lithium since January 2018, with its price down some 50 per cent, and the share prices of the key producers down between 20 and 50 per cent year to date.
The reality is that short-term pressures are pushing demand down whilst supply is moving into excess. Sales growth of EV’s in China is actually slowing following the removal of subsidies, and many of the other EV markets around the world are predicted to come off the boil, partly due to the current global economic slow-down and the ongoing threat of a US-China trade war.
On the supply side, six Lithium mines have opened in Australia alone since 2017, which are expected to increase output for the world’s leading producing country by around 23 per cent over the next two years. But such is the current flux that Albemarle, the world’s top producer, recently announced that it would delay construction of 125,000 tonnes of processing capacity and reduce its planned capital expenditure by $1.5 billion over the next five years.
Luke Kissam, Albemarle’s CEO, quoted in the Financial Times, summed up the current supply-demand dynamics as follows: “The potential impact of electric vehicle subsidy changes in China, possible shifts in cathode chemistry, excess inventory held in spots along the supply chain and the current over-supply of Lithium carbonate in the market has caused some caution in the energy storage value chain.” Well, that’s a fairly perfect storm to navigate for the world’s Lithium producers, and that’s not to mention a global slow-down threatening to turn into a recession.
Albemarle expects Lithium prices to firm in 2020. Others are not so sure. Morgan Stanley said this month it expects Lithium prices to keep falling until 2025, anticipating continued oversupply in the market and tougher economic conditions impacting EV adoption.
So it seems we will certainly see some negative volatility in the Lithium market in the short-term. But set against this, the long-term case for the metal remains correspondingly strong. The Bloomberg New Energy Finance team forecasts that by 2030 the supply of Lithium-ion batteries will need to increase by more than 10-fold, with EV’s accounting for more than 70 per cent of that demand. Some commentators might question whether this forecast takes sufficient account of the wave of demand expected for grid-level and local battery storage to balance the electricity networks in a more renewables-based energy market.
And with this long-term prognosis the geo-political pressure for a land-grab of strategic Lithium assets around the world, led by the Chinese, will no doubt be ramped up. So with any great shareprice weakness in key stocks we can expect to see fairly busy M&A activity in the sector, and an outbreak of resource nationalism as the United States in particular seeks to secure its supplies of this critical metal for the future in the face of its Asian rival.