In 2017, one of the key themes for the lithium industry concerned Asian investment throughout the supply chain. Asian battery manufacturers moved to continue building out battery manufacturing capacity to support the rapidly growing electric vehicle market in China, which is being commanded by government mandates to increase electric vehicle output. This news rattled the already-fragmented lithium supply industry, sending lithium carbonate pricing from $5,500 T LCE in 2015 to $13,00 T LCE by the end of 2017, and to over $15,00 T LCE in Q1 2018 (see chart below). Rising prices of lithium chemicals created a ripple effect for battery manufacturers and end-users of the white metal who are highly exposed to the vulnerable supply chain. The outcome was a tidal wave of investment from Asian companies into advanced lithium exploration companies and producers.
Another outcome of the recent events has been the deployment of investment capital to support exploration activities in prolific lithium regions of the world, including Argentina. In 2016, as the lithium industry gained momentum, a large number of juniors raised seed capital and flocked to Argentina with the hope of securing land packages. A sizable number of land package transactions took place throughout 2016 and into 2017. Companies such as Lithium Americas (LAC) and Orocobre (OTCPK:OROCF), which already have been active in Argentina for a number of years, locked up some of the best assets available in the market. Latecomers to the industry are now forced to pay higher prices for second-class projects. This is occurring at a time when the largest global lithium producer, SQM (SQM), has announced its intentions to dramatically increase lithium output by 2025. I advise investors not to take the SQM update at face value. Instead, focus on the demand landscape, which regardless of SQM requires a number of new companies to move into production over the next five years along with existing asset expansion.