Lithium Outlook 2017: Analysts Joe Lowry and C Berryhttps://investingnews.com/daily/resource-investing/energy-investing/lithium-investing/lithium-outlook/?mqsc=E3860260
Comments from analyst: The Investing News Network (INN) reached out to Joe Lowry of Global Lithium and Chris Berry of House Mountain Partners and the
Disruptive Discoveries Journal for their thoughts on 2016 and what to look for in 2017
The lithium industry has blossomed significantly over the last couple of years, and 2016 showed no signs of it slowing down
In particular, lithium has unquestionably emerged as a vital component in the battery supply, notably in electric vehicles (among other things). With that in mind, 2017 is poised to be another interesting year for the market.
Of note, Luke Kissam, CEO of Albemarle (NYSE:ALB) said in an interview with the Financial Times that lithium demand is expected to soar by 20,000 tons per year until 2021. Lithium supply is also poised to take off as a number of big projects are expected to start up.
The Investing News Network (INN) reached out to Joe Lowry of Global Lithium and Chris Berry of House Mountain Partners and the Disruptive Discoveries Journal for their thoughts on 2016 and what to look for in 2017.
While the lithium outlook 2017 is exciting, it’s worthwhile to first look at what impacted the lithium industry in 2016.
2016 lithium themes: price strength and supply crunch
Looking back at the lithium market in 2016, Lowry said that it developed as he anticipated. In particular, he noted supply continued to be short and prices in China remained high, “within a fairly narrow price brand,” although prices outside of China moved up significantly.
“SQM (NYSE:SQM)–as the leader in lithium carbonate supply to the battery industry–best represents what is happening to price outside China,” he said.
Lowry pointed out that SQM’s lithium carbonate supply has gone up from $6/kg in 2015 to $12/kg in the third quarter of 2016. He commented that “with each passing quarter,” a new normal for lithium carbonate prfficing outside of China is established.
Berry also expressed his thoughts on the lithium price, saying that the “surprising price strength really stood out” in 2016.
In that regard, Berry said the question that everyone should be asking is “what is the new normal for lithium chemicals pricing?”
“Spot market prices in China as well as current contract prices when they are re-negotiated will be a key metric to watch,” he said.
As it currently stands, it’s no secret that lithium demand outpaces its supply, as noted above. Prices in China, according to Platts, soared to $25,000 per metric ton in 2016; long term contract prices of $4,000-$7,000 metric tons are indicative of its undersupply.
With that in mind, Berry added that Chinese companies securing offtakes from juniors and major lithium producers–including Albemarle and FMC (NYSE:FMC)–and SQM announcing capacity expansions was significant in 2016.
“This was driven by the clear need for a secure supply of material (on the part of the Chinese) as well as strong top line and EBITDA growth (on the part of the major producers),” he said. “Based on recent statements by Albemarle management, it looks like they are trying to become a pure play lithium producer as the growth prospects in their other businesses pale in comparison to that of lithium.”
Lithium outlook 2017: supply/demand on the rise?
Moving forward on what to expect in 2017, in simple terms Lowry said it “will be interesting.”
“Demand should grow by at least 15,000-20,000 metric tons,” he suggested.
Simon Moores, managing director of Benchmark Mineral Intelligence, also echoed sentiments that lithium demand will grow significantly between now and 2020. During Benchmark’s World Tour 2016 stop in Vancouver, he suggested 100,000-120,000 tons of lithium will be required to keep balance, most of which he said will come from existing producers.
Looking at lithium supply, Lowry said hopefully the Mt. Cattlin (owned by Galaxy Resources (ASX:GXY)), and Mt. Marion (jointly owned by Neometals (ASX:NMT), Mineral Resources (ASX:MIN) and Jiangxi Gangfeng Lithium) projects will have smooth startups, having missed their 2016 startup dates.
“These projects should help ease the upward price pressure but you should not expect a rapid drop in price,” Lowry said.
In terms of other significant projects, Lowry noted Albemarle’s LaNegra 2 will begin producing in 2017, but won’t make a big market impact until 2018.
Still, with growing demand for lithium it’s clear that lithium supply will be able to keep up with it.
With that in mind, electric vehicles will heavily come into play in 2017, according to Moores, and lithium-ion megafactories will also continue growing. Moores added that 75 percent of these factories are–or will be–coming from China.
“Lithium, a key input into batteries, is the obvious beneficiary of the move to electric vehicles as the mining industry currently appears unlikely to be able to satisfy demand,” analysts at Investec said in a report, according to the Financial Times.
Factoring in the lithium price, Berry said that prices will remain robust next year.
“I think a long-term price of LCE is comfortably in the $10,000 per ton range, and you may see prices start to revert somewhat in the second half of 2017,” he added.
Investor takeaway
While supply is expected to ramp up in 2017, Berry said investors should be paying attention to what the optimal energy metals portfolio looks like, or consists of. He added that lithium is only one part of it, and that understanding the full supply chain will become important as time goes on.
“A clear understanding of materials science, and in particular battery materials science will be vital to your strategy,” he said.
Lowry said that battery producers will look to control their supply chains, so investors should also watch for direct investments from major battery companies in lithium suppliers.
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Galaxy Resources is a client of the Investing News Network. This article is not paid for content.
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.