Lithium looking like a real star
There was a graph in the recent presentation by emerging lithium producer Neometals (ASX:NMT) that may have escaped your notice but which is revealing considering the dismal outlook for other metals and commodities around the globe. It showed a (then) current lithium carbonate price of $6,400/tonne and lithium hydroxide at $8,500/tonne. But these seem to have been overtaken: the Neometals graph has a broken line going to about $10,500/tonne, which is the price being paid in China for lithium hydroxide. And now another Australian company reports that lithium carbonate is also fetching more than $10,000/tonne in China, and there are serious concerns about supply shortages.
Then on Tuesday The Financial Times reports that Tesla “has yet to announce any lithium supply deals with big producers, leaving it unclear where it will source the lightweight material it will need to start producing batteries by 2017 with partner Panasonic”. As Tesla’s Gigafactory is aiming to produce batteries for 500,000 Tesla cars by 2020, as well as get into the home and grid energy storage businesses, this seems extraordinary.
Alberta-based Banacora Minerals said in August that its lithium plant in Sonora, Mexico, had signed a conditional agreement with Tesla to supply lithium hydroxide, but the newspaper’s story this week says that plant is not expected to come into production until early 2018. At this point, we should remember that last month Lithium Australia (ASX:LIT) announced it was planning to work with Alix Resources to jointly develop lithium extraction technologies at the latter’s property. And that property is in the Mexican state of Sonora, and studies indicate it contains extensions from the neighbouring concession operated by Banacora. As Lithium Australia managing director Adrian Griffith remarked at the time, “the deposits in this region have already sparked the attention of Tesla as feed for the Gigafactory”.
So the outlook for lithium is, after all, one of the bright spots. There aren’t many others.
ANZ Bank, one of Australia’s “Big Four” and with a high profile commodity team (as befits one of the main commodity economies of the world) says “we see little upside in commodity prices over the next 12 months”. The bank expects this week’s almost certain rise in U.S. interest rates to be just another headwind for commodities. Crude prices will remain subdued, base metals prices are likely to weaken in the short term as declining Chinese demand and a stronger U.S. dollar outweigh supply cuts. Iron ore’s outlook is dire. The only glimmer of hope is in agricultural markets where ANZ believes there are early signs typical for the bottom of the price cycle. (And I would add that, at least in Australia, the rising level of activity among the potash and phosphate hopefuls suggests they, too, sniff an improving agricultural sector, which means farmers having more money to buy fertiliser.)
But, then, all those other commodities do not have a growth factor power-punch as represented by batteries for lithium. As the Neometals presentation shows, by 2025 batteries will account for 63% of lithium use, the next biggest market being ceramics and glass at 15%. (In 2014 batteries took 38% of lithium carbonate produced.)
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And it seems, if the price rise indications are correct, that China and lithium are behaving quite differently to China and other commodities. Lithium is breaking away from the pack.
So far as Tesla’s future demand is concerned, The Financial Times reports that Elon Musk has made it clear that his company will seek as much lithium as possible from Nevada, where there is so far one mine but where the Gigafactory will be located. The paper quotes one producer saying “you’re going to see a lot more people digging for lithium brine in Nevada”.
The overall picture, however, suggests that the lithium market will be a picture of growth in the foreseeable future.
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