The lithium market is about to end a nearly three-year downturn of low prices and low investment in new supply because of those low prices.
Demand for key battery metals, including lithium, is growing, thanks to the green energy investments and support of many governments worldwide, and many announcements from legacy carmakers about more electric vehicle (EV) models or all-electric car production within two decades.
The shares of the largest lithium producers have benefited from the EV momentum over the past year, despite the supply chain challenges in the pandemic in the first half of 2020.
Sociedad Química y Minera de Chile (SQM) has seen its stock price nearly double from $30 in mid-February 2020 to $57 at close on February 16, 2021.
Charlotte, North Carolina-based Albemarle Corporation has also seen its share price almost double, from $88 to $162 over the past year.
Analysts are growing increasingly bullish on lithium producers’ stocks, mostly because of the upside potential in lithium prices in the medium term, thanks to the constantly growing demand for EV and storage batteries.
The two biggest lithium producers, Albemarle and SQM, have recently announced expansion projects and long-term supply deals as they believe the EV revolution and the energy transition are just beginning.
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SQM, for example, signed in December a long-term supply deal with LG Energy Solution, which in turn supplies batteries to carmakers such as Tesla and GM. Under the deal, SQM will supply battery-grade lithium carbonate and lithium hydroxide to LG Energy Solution between 2021 and 2029.
The Chilean firm also announced a capital increase of up to US$1.1 billion, most of which will be used for lithium carbonate expansion in Chile, where SQM plans to more than double its production.
SQM sees the lithium industry growing at around 20 percent per year in the long term, supported by rising EV sales and emission reduction goals from China to the United States.
Albemarle is also raising money via a public offering of common stock, with proceeds expected at US$1.3 billion, which will be mostly invested in construction and expansion of lithium operations in Silver Peak, Nevada, as well as in Australia, Chile, and opportunities in China.
The biggest lithium producers are preparing for the growing EV demand, which is now coming not only from Tesla and Chinese start-ups, but also from established carmakers such as the highest-selling U.S. automaker GM and Jaguar.
The growing demand for clean energy and transport electrification will need as much as $1 trillion in investment in lithium, nickel, cobalt, copper, and aluminum by 2035, according to Wood Mackenzie. In other words, the world will need nearly twice as much investment in critical energy-transition minerals over the next 15 years as it has invested over the past 15 years, WoodMac says.
In recent months, the lithium market has shown signs of reversing the slump of the past two-three years. Related: Oil Prices Soar As U.S. Oil Production Plunges 30%
Lithium carbonate prices soared by more than 40 percent within China last month due to continued surging lithium iron phosphate (LFP) battery demand, Benchmark Mineral Intelligence said in its latest assessment.
“It’s back to the future for lithium in China,” George Miller, lithium analyst at Benchmark Mineral Intelligence, said, adding that “Although this surging price trend has largely been confined to lithium carbonate within China, this has had a knock-on effect elsewhere, drawing up lithium carbonate prices out of South America by 10%, and 6% for spodumene feedstock in Australia.”
“Demand for lithium chemicals has begun to outpace growth on the supply-side,” Miller told Reuters last month.
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The brighter prospects for lithium demand and prices amid expectations of soaring EV sales has prompted Citi and Deutsche Bank to upgrade their ratings on SQM and on Albemarle to ‘buy’ from ‘hold’.
“We are turning more bullish on lithium due to: EV momentum in China and Europe, the dissipation of excess lithium inventory, and announcements by OEMs like GM to go all-electric by 2035,” Citi analyst P.J. Juvekar said in a note carried by StreetInsider.
Rising global EV production and sales are set to drive an upcycle in the lithium market, positioning lithium producers’ stocks for further upside.
By Tsvetana Paraskova for Oilprice.com
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