Lithium costs reached unprecedented heights in 2021, and though they’ve been stabilizing at elevated ranges in latest months, they nonetheless have room to develop, in accordance with 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 could possibly be forward till halfway by means of the last decade for a market that retains rising yearly.
Learn the interview under to be taught extra about his ideas. It’s also possible to 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 12 months, and the way does it examine with what is going on 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 price than provide and that almost definitely within the subsequent few years there might 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 in the present day. Why, in your opinion, is that this turning into an increasing number of difficult?
DJ: It’s turning 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’ll after all privilege these kinds of accounts, moderately than getting new clients. So it’s troublesome for any person 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 wager on tasks. However the fact is we would not have too many tasks arising into manufacturing over the following two years; tasks normally have delays, normally have issues within the ramp-up part. It is also very dangerous to depend on a venture earlier than it is really in manufacturing and earlier than you face the truth of what this venture can actually do.
So basically patrons in the present day, after we discuss in regards to the subsequent three years, they should attempt to get into the books of current producers, who’ve most likely many of the ebook already accomplished for all their expansions.
INN: Trying then on the producers’ facet of the equation, what do you assume is the largest danger 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 intervening time, and I additionally don’t see a lot danger on the exploration facet. Truly, exploration has turn out to be rather a lot 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 in the present day.
From the venture builders’ facet, crucial danger is allowing. Allowing has turn out to be a really troublesome difficulty in lots of jurisdictions, and really troublesome to fulfill the targets governments have imposed. And 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 know-how dangers. After we discuss direct lithium extraction, the tasks actually have a danger — they at the least haven’t been massively scaled up on the earth, and whether or not they’ll work with particular new assets or totally different assets is a query mark. Then you’ve got assets, or different kinds of assets like clays, the place once more we do not have a large-scale industrial operation producing lithium out of clays, and the chance of that naturally exists there.
INN: You touched on costs and the way they’re affecting lithium exploration. I feel a query that is been round buyers’ 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 now we have an excessive scarcity of lithium in the present day, it is a little bit bit down now, I feel primarily due to Chinese language lockdowns, however that provides you a way of the place costs could possibly be on a everlasting foundation.
However I feel they could possibly be even increased. For those who assume that in the present day’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 value again in March, April if none of that may have been occurring. So I feel there’s room for costs to extend additional.
Is it sustainable long run? It relies on 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), at the least for the following three, 4 years. That’s just because demand goes to proceed rising, and the incremental provide which goes to be put into the market is not going to be ample to fulfill that demand. Subsequently, lithium can be a limiting issue for the elevated penetration price of electrical autos (EVs).
Now what occurs if we’re speaking 5 years from in the present day and onwards? Effectively, in the present day we’re seeing some huge cash being put into the trade. We’ll see the consequence of that when it comes to output of manufacturing, 5 years from now. And sure, there could possibly be a second the place there’s a balanced market and costs might modify downwards. To what degree at that time? These 5 years might be years through which we are going to see costs above greenfield growth incentive value ranges, so most likely above US$30. So from a producer’s perspective, whoever is producing in the present day 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 among the strikes you are anticipating to see from authentic tools producers (OEMs)? And from the trade?
DJ: OEMs are beginning to make huge efforts actually in making an attempt to safe their lithium provide. And whether or not they do it by means of the availability chain, battery suppliers or cathode suppliers or instantly, somehow will work. However what now we have seen is that an increasing number of OEMs are beginning to take management of that on their very own.
INN: Do you anticipate huge oil firms to make acquisitions in lithium going ahead, or to associate with lithium firms? And what different kinds of huge firms do you assume might soar into this market through mergers and acquisitions or partnerships?
DJ: Sure, I feel oil producers are wanting into this trade. We simply had the announcement of ExxonMobil (NYSE:XOM) getting concerned, and now we have seen them over the past years wandering round within the convention.
Now, when it comes to the dimensions of the trade, it is laborious for me to consider {that a} huge oil firm might be getting concerned in a single lithium venture. It is just too small for the size they function. So I might think about that moderately they are going to be after one of many larger lithium producers. So if I see them right here, I might see them actually in that area greater than getting concerned particularly tasks.
INN: Right here on the occasion you talked in regards to the prices of turning into a lithium miner in the present day. We’re seeing quite a lot of new gamers rising everywhere in the world. Which sort of firm do you assume might be greatest positioned to reach the sector?
DJ: I might assume that greater than the kinds of firms which is able to succeed, I feel now we have to think about the assets, the jurisdiction, the know-how, the individuals. The higher the useful resource, the possibilities are increased to succeed. The higher the manufacturing course of is known, the upper the possibilities are.
I might say the success price might be considerably increased with tasks which incorporate of their groups individuals with experiences from totally different fields. And after we’re speaking about brines, that have needs to be sought in Chile, largely; after we discuss mineral extraction, that’s in Australia; and after we discuss refining, that’s in China — that is the world in the present day. And that is why to herald individuals with expertise is essential.
INN: The availability dynamics within the lithium market are additionally altering at a regional degree. What do you assume the west can be taught from China, and Asia as a complete, in the case of constructing its lithium provide chain? And what do you assume it could do higher?
DJ: It is a little bit 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 in the present day.
It is extremely troublesome to do something upstream, after we’re speaking about cells, cathode manufacturing, for those who’re not centered the place EVs are being produced on the finish. This provide chain is beginning to transfer within the course of Europe, EV manufacturing has moved to Europe. It is instantly adopted by cell manufacturing. And we can have necessary cell manufacturing in Europe. The cathode trade is now following, with the primary cathode manufacturing in Europe being began up now.
So I feel that is going to naturally occur as soon as electrification of vehicles turns into large. And I feel the relative benefit China has in the present day might 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 feel with reference to EV manufacturing, to cell and to cathode manufacturing, they’ll be capable of do it. What Europe and North America will most likely by no means be capable of do is to be ample in lithium. And just because lithium is just not current at scale, on the grade, on the extraction prospects that you’ve in South America or in Australia.
The independence might be relative within the sense that Europe and North America will most likely at all times depend upon Australia and South America. China in the present day is extraordinarily susceptible. It has very, little or no lithium as a useful resource. So I do not assume that the west so to say is underneath any main danger, long run. It is a pure motion of the trade or the upstream little by little.
INN: One other huge theme right here on the convention has been recycling. Do you assume it will turn out to be a big a part of supplying lithium sooner or later? And when do you anticipate this to occur?
DJ: At this time we’re beginning to see recycling being necessary, 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 feel we’re solely going to start out seeing large recycling as soon as batteries in EVs come to finish of life. And that might be occurring, if we assume {that a} battery can have a lifetime of seven to 10 years, in direction of the top of the last decade. That after all may also change the general provide/demand image fairly considerably.
Based mostly on the numbers now we have performed with, and once more that is arithmetic, you may simply assume that many of the demand will increase from 2035 onwards might 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 almost definitely see a market through which the excessive quantity of major lithium, so mined lithium — the requirement of incremental demand, 12 months by 12 months — might be lowering. So throughout this decade, we have to produce considerably extra lithium yearly. However through 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 area 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 following 12 months, that means the problem of OEMs and cell producers to safe lithium. It would not shock me that we see a big quantity of upstream and downstream gamers so to say. And — and this may be one thing which takes off this stress and brings some reduction in direction of the second half of this decade — however for at the least the following 4 years, I feel provide must be considerably greater than what now we have in the present day. And I would moderately say the chance is that provide is decrease than what we’re focusing in the present day due to ramping up points.
Do not forget to comply with 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.
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