Note: This article was first published on my SA Marketplace service on March 17, 2017 - so stock prices and stock data listed in the article are as of that date.
Lithium demand and supply - insights from my model
Strong lithium demand from:
1) Consumer electronics continue to grow and increased CPU capacity requires increasing battery capacity. I model consumer electronic demand for lithium to rise at 10%pa.
The rise of the global middle class with their insatiable appetite for consumer electronics (think mostly smartphones, tablets, PCs) will drive steady but not spectacular demand for lithium.
2) Electric Vehicles (EVs) sales growing at about 30-50%pa. 2015 growth was 40%.
Electric car global sales are currently 0.85% market share, and I expect this to grow to around 5% market share by end 2020. That equates to an increase from around 774,000 sales in 2016 to around 4.5m sales globally in the year 2020. If we assume the average electric car will have a 50kWh battery then each car will require about 40kgs of lithium. So by 2020 4.5m cars will require 180,000 tonnes of lithium carbonate. Adding to this will be lithium demand from electric buses, electric bikes, and electric trucks. In 2016 China demand for electric buses was 115,000 units. China has over 200m electric bikes (as of 2014) that can be converted to lithium-ion batteries from lead acid. Of note the Chinese e-bike numbers increased 1,000-fold in the 15 years prior to 2014).
3) Energy storage sales expected to grow at 50%+ pa between 2016 and 2020.
In 2016 energy storage installations grew 100% in the US. Lithium-ion batteries represented at least 97 percent of all energy storage capacity deployed in 2016. China plans to raise its power storage capacity by ten-fold to 14.5 gigawatts by 2020 (from 2016 levels). Citigroup forecast that the global energy storage market will be greater than $400 billion by 2030 from around 130m in 2015, or a growth of a staggering 3,077 fold in just 15 years. These figures are excluding car batteries. Energy storage has the potential to overtake lithium demand for EVs.
The summary of the above three lithium demand growth drivers will mean that total lithium demand should increase around 2.2 fold between now and end 2020. At end 2016 total lithium demand stood around 212ktpa. By end 2020 my model based on the above discussed assumptions has lithium demand forecast to be 478ktpa.
Lithium supply is increasing slowly due to difficulties in creating a new mine. Supply should be able to keep up with demand with some short periods of both undersupply (2016/2017) and oversupply (2019) based on my model forecasts. This should ensure that the lithium price remains mostly above US 10,000/t for lithium carbonate. The current contract prices are between US$10,000-15,000, with spot and lithium hydroxide prices higher especially in China.
Lithium demand and supply graph by Orocobre
Source: Orocobre company presentation - November 2016 - page 10
We can see on the above graph forecast supply from the new lithium production coming online from 2016-2020. Looking out to 2020, we see the main contributors to new lithium supply are forecast to be Orocobre, Albemarle (Atacama and Greenbushes), SQM/LAC (Cauchari-Olaroz), Gangfeng/Neometals (Mt Marion), Galaxy Resources (Mt Cattlin), Pilbara Minerals and Altura Mining. Therein gives investors a very good guide of the companies they should be looking closely to invest in.
Given there is a strong case for lithium prices to hold above US$10,000/t the following 5 lithium miners can all do extremely well as they increase their lithium production and sales. The first 3 are current produces, and the last 2 should be producing by 2019.
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