Lithium costs reached unprecedented heights in 2021, and though they’ve been stabilizing at elevated ranges in current months, they nonetheless have room to develop, in line 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 way of the last decade for a market that retains rising yearly.
Learn the interview beneath 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 business this yr, and the way does it examine with what is occurring within the markets proper now?
Daniel Jimenez: I’d say there’s a standard understanding that demand is robust, that it is going to proceed to be rising at a stronger price than provide and that almost definitely within the subsequent few years there will likely be a bottleneck within the electrification of fleets.
INN: On the convention, you had been a part of a panel discussing what lithium shoppers can do to safe lithium provide at the 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 once we take into consideration the quick time period, manufacturing will increase will come from incumbents. And these incumbents, they’ve a buyer base, so they may after all privilege these varieties of accounts, somewhat than getting new clients. 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 wager on initiatives. However the reality is we don’t have too many initiatives developing into manufacturing over the following two years; initiatives normally have delays, normally have issues within the ramp-up part. It is also very dangerous to depend on a challenge earlier than it is truly in manufacturing and earlier than you face the truth of what this challenge can actually do.
So basically patrons at the moment, once we speak in regards to the subsequent three years, they must attempt to get into the books of present producers, who’ve in all probability a lot of the ebook already accomplished for all their expansions.
INN: Trying then on the producers’ aspect of the equation, what do you assume is the most important 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 meanwhile, and I additionally don’t see a lot danger on the exploration aspect. Really, exploration has turn out to be so much much less dangerous as a result of with these new value ranges, which the business expects for lithium, sources that we would not have checked out six years in the past are a first-rate goal at the moment.
From the challenge builders’ aspect, a very powerful danger is allowing. Allowing has turn out to be a really troublesome subject in lots of jurisdictions, and really troublesome to fulfill the targets governments have imposed. And a great instance of that’s Europe or North America.
I’ll let you know there’s additionally a giant group of explorers who even have useful resource and expertise dangers. Once we speak about direct lithium extraction, the initiatives definitely have a danger — they no less than haven’t been massively scaled up on this planet, and whether or not they may work with particular new sources or totally different sources is a query mark. Then you have got sources, or different varieties of sources 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 business 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 at the moment, it is a little bit bit down now, I believe 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 believe they could possibly be even greater. When you assume that at the moment’s manufacturing is slowed down by provide chain disruptions, by chips which aren’t there, by the lockdowns in China, think about what may have been the worth again in March, April if none of that might have been taking place. So I believe there’s room for costs to extend additional.
Is it sustainable long run? It depends upon what you consider the long run, however I’d assume that costs will stay excessive or very excessive, and by that I imply above US$40 (per kilogram), no less than 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 won’t be ample to fulfill that demand. Due to this fact, lithium could be a limiting issue for the elevated penetration price of electrical autos (EVs).
Now what occurs if we’re speaking 5 years from at the moment and onwards? Nicely, at the moment we’re seeing some huge cash being put into the business. We are going to see the consequence of that by way of output of manufacturing, 5 years from now. And sure, there could possibly be a second the place there’s a balanced market and costs may regulate downwards. To what stage at that time? These 5 years will likely be years wherein we’ll see costs above greenfield growth incentive value ranges, so in all probability above US$30. So from a producer’s perspective, whoever is producing at the moment ought to have 10 years of very, very excessive costs relative to what we had been imagining costs had been going to be three years in the past.
INN: So if provide is not capable of meet demand, what are among the strikes you are anticipating to see from unique gear producers (OEMs)? And from the business?
DJ: OEMs are beginning to make large efforts actually in making an attempt to safe their lithium provide. And whether or not they do it by way of the availability chain, battery suppliers or cathode suppliers or straight, by some means 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 count on large oil corporations to make acquisitions in lithium going ahead, or to accomplice with lithium corporations? And what different varieties of large corporations do you assume may leap into this market by way of mergers and acquisitions or partnerships?
DJ: Sure, I believe oil producers are wanting into this business. 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, by way of the dimensions of the business, it is arduous for me to imagine {that a} large oil firm will likely be getting concerned in a single lithium challenge. It is just too small for the dimensions they function. So I may think about that somewhat they are going to be after one of many greater lithium producers. So if I see them right here, I’d see them actually in that area greater than getting concerned particularly initiatives.
INN: Right here on the occasion you talked in regards to the prices of changing into a lithium miner at the moment. We’re seeing plenty of new gamers rising everywhere in the world. Which kind of firm do you assume will likely be greatest positioned to achieve the sector?
DJ: I’d assume that greater than the varieties of corporations which can succeed, I believe now we have to think about the sources, the jurisdiction, the expertise, the folks. The higher the useful resource, the possibilities are greater to succeed. The higher the manufacturing course of is known, the upper the possibilities are.
I’d say the success price will likely be considerably greater with initiatives which incorporate of their groups folks with experiences from totally different fields. And once we’re speaking about brines, that have needs to be sought in Chile, largely; once we speak about mineral extraction, that’s in Australia; and once we speak about refining, that’s in China — that is the world at the moment. And that is why to herald 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, relating to constructing its lithium provide chain? And what do you assume it will probably 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 superb at recognizing the chance and moved in a short time into that. And the entire ecosystem is inbuilt Japan, Korea and China at the moment.
It is extremely troublesome to do something upstream, once 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 path of Europe, EV manufacturing has moved to Europe. It is instantly adopted by cell manufacturing. And we can have essential cell manufacturing in Europe. The cathode business 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 vehicles turns into huge. And I believe the relative benefit China has at the moment will likely be extra in the truth that they’ve in all probability developed applied sciences in particular areas the place the west is behind.
INN: Is there a risk then that areas like Europe and nations just like the US may provide their very own lithium wants in some unspecified time in the future and transfer away from China?
DJ: I believe with reference to EV manufacturing, to cell and to cathode manufacturing, they may be capable to do it. What Europe and North America will in all probability by no means be capable to do is to be ample in lithium. And just because lithium is just not current at scale, on the grade, on the extraction potentialities that you’ve got in South America or in Australia.
The independence will likely be relative within the sense that Europe and North America will in all probability all the time rely on Australia and South America. China at the 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 beneath any main danger, long run. This can be a pure motion of the business or the upstream little by little.
INN: One other large theme right here on the convention has been recycling. Do you assume this may turn out to be a big a part of supplying lithium sooner or later? And when do you count on this to occur?
DJ: At this time we’re beginning to see recycling being essential, 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 throughout the provide chain, it hasn’t gone out into the market.
I believe we’re solely going to begin seeing huge recycling as soon as batteries in EVs come to finish of life. And that will likely be taking place, 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.
Primarily based on the numbers now we have performed with, and once more that is arithmetic, you might simply assume that a lot of the demand will increase from 2035 onwards will likely be provided by lithium popping out of spent batteries which have been recycled and which had been produced or extracted 10 years earlier than. We are going to almost definitely see a market wherein the excessive quantity of main lithium, so mined lithium — the requirement of incremental demand, yr by yr — will likely be lowering. So throughout this decade, we have to produce considerably extra lithium yearly. However through the subsequent decade, in all probability that would not be essential to that extent.
INN: Lastly may you outline briefly for our investor viewers what you expect to occur within the lithium area from now till 2025?
DJ: I’d count on to have a good marketplace for lithium. We are going to in all probability see excessive costs, and that can very a lot outline the following 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 stress and brings some reduction in direction of the second half of this decade — however for no less than the following 4 years, I believe provide must be considerably greater than what now we have at the moment. And I would somewhat say the danger is that offer is decrease than what we’re focusing at the moment due to ramping up points.
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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 knowledge reported within the interviews it conducts. The opinions expressed in these interviews don’t replicate 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.
