Lithium costs reached unprecedented heights in 2021, and although they’ve been stabilizing at elevated ranges in latest months, they nonetheless have room to develop, based on Daniel Jimenez of iLi Markets.
Talking with the Investing Information Community (INN) at Fastmarkets’ Lithium Provide and Uncooked Supplies convention, the previous vp with SQM (NYSE:SQM) shared his insights on pricing, provide and demand dynamics and what may very well be forward till halfway by the last decade for a market that retains rising yearly.
Learn the interview beneath to be taught extra about his ideas. You may as well click on right here for INN’s YouTube playlist of audio interviews from the Fastmarkets occasion.
INN: How are you discovering sentiment within the lithium trade this yr, and the way does it examine with what is occurring within the markets proper now?
Daniel Jimenez: I might say there’s a standard understanding that demand is powerful, that it should proceed to be rising at a stronger charge than provide and that most probably within the subsequent few years there will probably be a bottleneck within the electrification of fleets.
INN: On the convention, you have been a part of a panel discussing what lithium shoppers can do to safe lithium provide right this moment. Why, in your opinion, is that this changing into an increasing number of difficult?
DJ: It’s changing into difficult as a result of after we take into consideration the brief time period, manufacturing will increase will come from incumbents. And these incumbents, they’ve a buyer base, so they are going to after all privilege these sorts of accounts, somewhat than getting new prospects. So it’s troublesome for anyone who has not been within the mainstream to supply and get a portion of that incremental lithium.
The opposite factor that’s left is then to guess on tasks. However the reality is we would not have too many tasks arising into manufacturing over the subsequent two years; tasks often have delays, often have issues within the ramp-up section. It is also very dangerous to depend on a challenge earlier than it is truly in manufacturing and earlier than you face the fact of what this challenge can actually do.
So basically consumers right this moment, after we speak concerning the subsequent three years, they need to attempt to get into the books of current producers, who’ve most likely a lot of the e-book already accomplished for all their expansions.
INN: Trying then on the producers’ aspect of the equation, what do you assume is the most important threat for them within the present market? And the way does that examine to the dangers confronted by explorers and builders?
DJ: From a producer’s perspective, I don’t see too many dangers in the mean time, and I additionally don’t see a lot threat on the exploration aspect. Really, exploration has change into lots much less dangerous as a result of with these new value ranges, which the trade expects for lithium, assets that we would not have checked out six years in the past are a primary goal right this moment.
From the challenge builders’ aspect, crucial threat is allowing. Allowing has change into a really troublesome subject in lots of jurisdictions, and really troublesome to satisfy the targets governments have imposed. And a very good instance of that’s Europe or North America.
I’ll let you know there’s additionally an enormous group of explorers who even have useful resource and expertise dangers. Once we speak about direct lithium extraction, the tasks definitely have a threat — they not less than haven’t been massively scaled up on the planet, and whether or not they are going to work with particular new assets or completely different assets is a query mark. Then you’ve got assets, or different sorts of assets like clays, the place once more we do not have a large-scale industrial operation producing lithium out of clays, and the danger of that naturally exists there.
INN: You touched on costs and the way they’re affecting lithium exploration. I believe a query that is been round traders’ minds is how excessive costs can go. What’s your opinion, and are such excessive costs good for the trade in the long run?
DJ: Costs are a consequence of provide and demand, and on this market the place we’ve got an excessive scarcity of lithium right this moment, it is slightly bit down now, I believe primarily due to Chinese language lockdowns, however that provides you a way of the place costs may very well be on a everlasting foundation.
However I believe they may very well be even larger. When you assume that right this moment’s manufacturing is slowed down by provide chain disruptions, by chips which aren’t there, by the lockdowns in China, think about what might have been the worth again in March, April if none of that will have been taking place. So I believe there’s room for costs to extend additional.
Is it sustainable long run? It is determined by what you consider the long run, however I might assume that costs will stay excessive or very excessive, and by that I imply above US$40 (per kilogram), not less than for the subsequent three, 4 years. That’s just because demand goes to proceed rising, and the incremental provide which goes to be put into the market won’t be adequate to fulfill that demand. Subsequently, lithium could be a limiting issue for the elevated penetration charge of electrical automobiles (EVs).
Now what occurs if we’re speaking 5 years from right this moment and onwards? Nicely, right this moment we’re seeing some huge cash being put into the trade. We’ll see the consequence of that by way of output of manufacturing, 5 years from now. And sure, there may very well be a second the place there’s a balanced market and costs might modify downwards. To what stage at that time? These 5 years will probably be years during which we’ll see costs above greenfield growth incentive value ranges, so most likely above US$30. So from a producer’s perspective, whoever is producing right this moment ought to have 10 years of very, very excessive costs relative to what we have been imagining costs have been going to be three years in the past.
INN: So if provide is not in a position to meet demand, what are a few of the strikes you are anticipating to see from authentic gear producers (OEMs)? And from the trade?
DJ: OEMs are beginning to make massive efforts actually in making an attempt to safe their lithium provide. And whether or not they do it by the availability chain, battery suppliers or cathode suppliers or straight, by hook or by crook will work. However what we’ve got seen is that an increasing number of OEMs are beginning to take management of that on their very own.
INN: Do you anticipate massive oil firms to make acquisitions in lithium going ahead, or to accomplice with lithium firms? And what different sorts of massive firms do you assume might soar into this market by way of mergers and acquisitions or partnerships?
DJ: Sure, I believe oil producers are trying into this trade. We simply had the announcement of ExxonMobil (NYSE:XOM) getting concerned, and we’ve got seen them during the last years wandering round within the convention.
Now, by way of the dimensions of the trade, it is laborious for me to imagine {that a} massive oil firm will probably be getting concerned in a single lithium challenge. It is just too small for the dimensions they function. So I might think about that somewhat they are going to be after one of many greater lithium producers. So if I see them right here, I might see them actually in that house greater than getting concerned specifically tasks.
INN: Right here on the occasion you talked concerning the prices of changing into a lithium miner right this moment. We’re seeing a whole lot of new gamers rising all around the world. Which sort of firm do you assume will probably be greatest positioned to reach the sector?
DJ: I might assume that greater than the sorts of firms which can succeed, I believe we’ve got to think about the assets, the jurisdiction, the expertise, the folks. The higher the useful resource, the possibilities are larger to succeed. The higher the manufacturing course of is known, the upper the possibilities are.
I might say the success charge will probably be considerably larger with tasks which incorporate of their groups folks with experiences from completely different fields. And after we’re speaking about brines, that have needs to be sought in Chile, principally; after we speak about mineral extraction, that’s in Australia; and after we speak about refining, that’s in China — that is the world right this moment. And that is why to usher in folks with expertise is vital.
INN: The availability dynamics within the lithium market are additionally altering at a regional stage. What do you assume the west can be taught from China, and Asia as a complete, in relation to constructing its lithium provide chain? And what do you assume it may possibly do higher?
DJ: It is slightly little bit of an unfair query within the sense that I do not blame the west for having been late. The reality is that this story began in Japan with batteries, then moved into Korea and China. China was excellent at recognizing the chance and moved in a short time into that. And the entire ecosystem is inbuilt Japan, Korea and China right this moment.
It is vitally troublesome to do something upstream, after we’re speaking about cells, cathode manufacturing, in the event you’re not centered the place EVs are being produced on the finish. This provide chain is beginning to transfer within the route of Europe, EV manufacturing has moved to Europe. It is instantly adopted by cell manufacturing. And we could have vital cell manufacturing in Europe. The cathode trade is now following, with the primary cathode manufacturing in Europe being began up now.
So I believe that is going to naturally occur as soon as electrification of automobiles turns into large. And I believe the relative benefit China has right this moment will probably be extra in the truth that they’ve most likely developed applied sciences in particular areas the place the west is behind.
INN: Is there a chance then that areas like Europe and international locations just like the US may provide their very own lithium wants sooner or later and transfer away from China?
DJ: I believe almost about EV manufacturing, to cell and to cathode manufacturing, they are going to be capable of do it. What Europe and North America will most likely by no means be capable of do is to be adequate in lithium. And just because lithium isn’t current at scale, on the grade, on the extraction potentialities that you’ve got in South America or in Australia.
The independence will probably be relative within the sense that Europe and North America will most likely all the time rely upon Australia and South America. China right this moment is extraordinarily weak. It has very, little or no lithium as a useful resource. So I do not assume that the west so to say is below any main threat, long term. It is a pure motion of the trade or the upstream little by little.
INN: One other massive theme right here on the convention has been recycling. Do you assume this may change into a big a part of supplying lithium sooner or later? And when do you anticipate this to occur?
DJ: As we speak we’re beginning to see recycling being vital, however that recycling is primarily recycling of manufacturing, both off-spec cathode materials or scrap supplies from the manufacturing of cells. So it is all inside the provide chain, it hasn’t gone out into the market.
I believe we’re solely going to start out seeing large recycling as soon as batteries in EVs come to finish of life. And that will probably be taking place, if we assume {that a} battery could have a lifetime of seven to 10 years, in the direction of the tip of the last decade. That after all can even change the general provide/demand image fairly considerably.
Primarily based on the numbers we’ve got performed with, and once more that is arithmetic, you may simply assume that a lot of the demand will increase from 2035 onwards will probably be equipped by lithium popping out of spent batteries which have been recycled and which have been produced or extracted 10 years earlier than. We’ll most probably see a market during which the excessive quantity of major lithium, so mined lithium — the requirement of incremental demand, yr by yr — will probably be reducing. So throughout this decade, we have to produce considerably extra lithium yearly. However throughout the subsequent decade, most likely that would not be essential to that extent.
INN: Lastly might you outline briefly for our investor viewers what you expect to occur within the lithium house from now till 2025?
DJ: I might anticipate to have a decent marketplace for lithium. We’ll most likely see excessive costs, and that may very a lot outline the subsequent yr, that means the difficulty of OEMs and cell producers to safe lithium. It would not shock me that we see a major quantity of upstream and downstream gamers so to say. And — and this is perhaps one thing which takes off this strain and brings some aid in the direction of the second half of this decade — however for not less than the subsequent 4 years, I believe provide must be considerably greater than what we’ve got right this moment. And I might somewhat say the danger is that offer is decrease than what we’re focusing right this moment due to ramping up points.
Do not forget to observe us @INN_Resource for real-time updates!
Securities Disclosure: I, Priscila Barrera, maintain no direct funding curiosity in any firm talked about on this article.
Editorial Disclosure: The Investing Information Community doesn’t assure the accuracy or thoroughness of the data reported within the interviews it conducts. The opinions expressed in these interviews don’t mirror the opinions of the Investing Information Community and don’t represent funding recommendation. All readers are inspired to carry out their very own due diligence.
