Forget about oversupply of lithium, and ignore the naysayers. There’s no bubble here.
Everyone’s talking about electric cars, and lithium miners are getting more than a kick out of it. They’re enjoying share price rallies and better growth prospects, all thanks to boisterous demand-growth predictions.
Since lithium demand won’t stop growing, voices caution of a lithium bubble that will someday burst. But this year, the demand prospects for the abundant metal improved quickly and substantially, after the UK became the third European country after France and Norway to set a deadline for the phase-out of internal combustion engine vehicles, and after energy gluttons China and India announced similar plans.
These are long-term initiatives, with an equally long-term lithium demand. Throw in the slew of new EV project announcements from several big carmakers, and lithium’s future seems more than bright, as does the future of the companies that mine it.
Lithium miners are one of very few ways to gain exposure to the metal. There are no lithium futures yet, although there’s growing talk about changing this. There are lithium-focused ETFs comprised of a basket of miners and battery makers, and then there are the battery and EV makers themselves. However, with carmakers currently recording losses on their electric car projects, lithium miners seem to be the better bet—for now at least.
No wonder, then, that one of the leaders in lithium mining, Albemarle (NYSE:ALB), gained 28 percent over the last three months—outperforming the industry and adding a comparatively smaller but still hefty 12 percent in the period. The stock has accumulated gains of 60 percent since January, and its long-term earnings outlook looks better than good, with EPS seen to rise by 14.8 percent. Related: World’s No.1 Oil Trader: U.S. To See Final Oil Output Spike In 2018
Albemarle reported a 60-percent jump in adjusted EBITDA for its lithium and advanced materials division for the second quarter of the year to US$133 million, and now expects full-2017 lithium EBITDA to rise by more than 35 percent on the year. The company based its upbeat projection on growing demand and prices for battery-grade lithium products.
The miner and chemicals producer isn’t about to sit back and enjoy the higher prices, though. Last month, it asked the Chilean government to increase its production quota for the Atacama salt flat. Currently, Albemarle has a permit to mine 80,000 tons of lithium brine annually from the deposit. It wants to raise this to 125,000 tons, which would bring Albemarle’s total Chilean investment to $1 billion over the next five years. It will also involve the use of new technology that will boost production efficiency, allowing the company to extract more brine without any additional brine pumping.
Albemarle is also growing inorganically: in January, the miner completed the acquisition of Chinese Jiangxi Jiangli New Materials Science and Technology Co. Ltd.’s lithium operations for $145 million. The assets have a lithium salts production capacity of 15,000 metric tons annually, which Albemarle is already working to expand this by another 20,000-25,000 tons annually.
Albemarle has ambitious plans to grab 50 percent of the growth in lithium demand, and is wasting no time in pursuing this goal. Such a growth drive could spark worry under other circumstances, but the latest forecasts for lithium demand are point toward growth—and substantial growth at that.
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Market research provider Freedonia, for example, projects that lithium demand will grow by an annual rate of 8.9 percent until 2019, with EV batteries and energy storage systems driving the growth.
CRU, a UK-based consultancy, projects that lithium supply will grow sharply in the next five years, with new production hitting 25 percent of total supply by 2022. In absolute terms, lithium output is estimated to reach 500,000 tons by 2020, a more than twofold increase from the current rate of 200,000 tons. This is a massive growth rate, but EV production will grow, too—annual EV production is forecast to reach 500,000 cars by 2020.
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That’s a half a million vehicles that will require lithium for their batteries, and while it’s true that the amount of lithium in same-name batteries is tiny compared to other metals that make up the pack, a half million EVs are just the beginning. The fight for competitive edge in the lithium industry will only intensify.
By Irina Slav for Oilprice.com
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Many of these improvements and innovations will help to reduce the litium need per batteries despite the need for 3x or more increases in battery size per vehicle, and orders of magnitude growth in vehicle production. Both Toshiba and NanoOne claim an increase of around 3x or more energy per Kg of litium, with claims of theoretical limits of 5x for current battery technology metal combos.
Certainly the miners are critical in this picture, but the need may not grow as outrageously as the current straight line predictions suggest.