Stockhead: Lithium price rise ‘insane’ says Tesla co-founder Elon Musk

Lithium, once an anti-depressant, is now lifting the spirits of investors – and it’s a boom that’s shocked even Elon Musk.

Even Elon Musk says supercharged lithium prices are 'insane’. Picture: AFP

Today’s market for lithium and its compounds is vastly different from that prevailing just 20 years ago.

At the turn of the century, investors looking at lithium uses would have seen ceramic cooktops, thermal glassware, grease, and other industrial applications as well as the pharmaceutical industry.

Legendary usage as an anti-depressant even emerged as the “refreshing” soda called 7-UP, where the number 7 referred to the atomic weight of the drink’s key ingredient in early versions!

It is worth remembering that the Prius was the first truly commercial hybrid-electric vehicle, but employed a Ni-Metal Hydride battery, as Li-ion battery technology was still not mature.

However, as Li-ion battery technology advanced, costs fell and energy density rose so that by 2010, the technology overtook early mobile battery technologies like Nickel-Metal Hydride and Ni-Cd.

-

For stock news and analysis, sign up here for free Stockhead daily newsletters

-

Massive expansion in the use of Li-ion batteries for mobile equipment, tools and telecommunication, plus pioneering work in electric vehicle (EV) development by Tesla, demonstrating to the market how the future of automobiles would look, saw a speculative bubble develop for lithium in the 20-teens.

Speculation on a boom in demand lifted pricing for lithium chemicals from ~US$5,000 to ~US$19,000 per tonne for carbonate, while 6% lithia (Li2O) spodumene concentrate jumped from around US$400 to over US$700 per tonne, only to see chemicals retreat to around US$7,000 per tonne during 2020 as supply overwhelmed demand.

Recent market dynamics have reversed, as accelerated demand for lithium chemicals in China played out against limited incremental supply.

The price of 6% lithia concentrate lifted from a 2020 nadir low of around US$380 per tonne to over US$3,000 and according to Fastmarkets, up to US$5,750 per tonne for small volumes at spot sales.

Meanwhile, recent spot lithium hydroxide monohydrate 56.5% battery grade (CIF China) has traded at around US$81,500 per tonne, and producers expect contracted sales prices will lift to around US$35,000 per tonne FOB by mid-2022.

A strong spot market for both concentrates and chemicals is now seeing miners and processors who had been delivering on contract arrangements, gradually lifting sales prices as contracts expire.

A rapid transition towards renewable energy and power storage gathered pace as the price of oil moved from sub-US$40 to over US$100 per barrel over the past two years. This action is adding to demand for EVs and stationary power storage applications, along with lithium and other battery metals.

Chinese EV automakers lead the way globally with sales of 3.2 million units in 2021, set to rise over 5 million in 2022.

Supporting these projections are numbers from Allkem (ASX:AKE) for the March 2022 quarter, wherein global EV sales are estimated at ~2 million units, up ~70% compared to last year. EV sales in China alone were estimated at ~1.1 million units during the March quarter, representing a 150% increase over the same period last year.

China’s growth in output is supported by expansion of the lithium, iron, phosphate battery (Li-FeP) format in its domestic market, which now represents more than 55% of battery chemistries and demonstrates how rapidly the market can change.

A worker at a factory for Xinwangda Electric Vehicle Battery Co. Ltd, which makes lithium batteries for electric cars and other uses, in Nanjing, China. Picture: AFP

Remarkably, Deloitte forecasts ongoing, 29% compound annual growth in global EV sales, resulting in a market share of 32% of global new car sales by 2030, which may prove to be too conservative.

Strong prices are being maintained by low inventories of lithium raw materials, even as global suppliers ramp up new production and recommission facilities that were mothballed in 2019. However, technical hurdles remain for new processes to source lithium from brines, leaving potential producers unable to match rising demand.

Market price action has led Tesla co-founder and chief executive officer Elon Musk to remark (on Twitter, of course) that the soaring lithium price “has gone to insane levels”.

Demand outpacing supply

A notable response to market uncertainty is ongoing consolidation in the lithium value chain as automakers reach upstream to make investments in the supply of battery metals and in downstream lithium chemical supply.

Russia’s invasion of the Ukraine along with logistics constraints resulting from the Covid-19 pandemic, have hastened a move to expand battery materials capacity in North America and Europe. Governments globally have realised the importance of developing local supply of critical battery materials including lithium.

Allkem estimates that global supply of lithium carbonate equivalent (LCE) will rise from about 0.55 million tonnes in 2022 to 1.8 million tonnes in 2030, while demand rises to at least 2.4 million tonnes over that period. Quoting Wood Mackenzie, Allkem says that demand is set to be driven by a lift in Li-ion battery making capacity from 1,000 GWh in 2021 to a projected 4,700 GWh by 2030.

Battery technologies are developing rapidly. New chemistries for existing technology are being trialled as well as completely new battery technologies.

High prices for lithium chemicals and other cathode metals have already favoured use of Li-FeP for city-based vehicles.

Meanwhile, the world’s largest battery maker, Contemporary Amperex Technology (CATL) has just commissioned a sodium-ion (Na-ion) battery manufacturing line, essentially using the same manufacturing technology as is used to make Li-ion batteries.

These Na-ion batteries will be heavier than their Li-ion cousins, but should have similar technical performance, making them suitable for EVs and stationary power storage applications, over mobile equipment uses.

Four advanced ASX lithium stocks with room to run

Spodumene – sold to lithium chemical producers from hard rock mines in Australia by companies like Pilbara Minerals (ASX:PLS) and Allkem (ASX:AKE) – was trading at an average price of $US3,263 at the start of April.

That’s a gain of 504% over the past year, with more to come.

Near-term lithium miners have also enjoyed huge gains over the past year, led by Lake Resources (ASX:LKE) (+3,228%) and Sayona Mining (ASX:SYA) (+3,600%).

Below, Stockhead’s Reuben Adams has pulled out four potential near-term miners (scoping level or better) under a $300m market cap, which have yet to run hard.

LITHIUM POWER INTERNATIONAL(ASX:LPI)

Market cap: $290m

The company wants to begin construction at the 51%-owned ‘Maricunga’ JV project in Chile later this year.

An updated definitive feasibility study, usually the most advanced of mining studies, envisaged average earnings before tax of $US324m from 15,200tpa of LCE production over 20 years.

An operating cost of $US3,718 per tonne could mean big profit margins at current lithium prices above $US60,000t.

Final Investment Decision is expected for some time in 2022, it says, with construction to start immediately after.

JINDALEE RESOURCES (ASX:JRL)

Market cap: $270m

JRL’s 1.43 billion tonne ‘McDermitt’ project includes one the largest lithium deposits in the US.

While light on detail, a September 2021 scoping study – the first proper look at the economics of building a mine – “show a large and valuable project”, JRL says.

The company expects to publish an updated mineral resource for McDermitt in the current quarter and has planned a further drill program for the second half of the calendar year.

LEPIDICO (ASX:LPD)

Market cap: $250m

LPD wants to build a lithium mine and concentrator in Namibia, and a chemical conversion plant in Abu Dhabi.

In December, LPD signed a binding lithium hydroxide offtake agreement with commodity trading firm Traxys.

For LPD, this represents 100% of the production of lithium hydroxide over seven years from the company’s planned Phase 1 Project, which is due to fire up in 2023.

EUROPEAN METALS (ASX:EMH)

Market cap: $230m

EMH’s ‘Cinovec’ project in Czech Republic (49% interest) is bigger than all other hard rock projects in the EU combined, it says.

The integrated mine and processing operation would produce 29,386tpa lithium hydroxide over 25 years at operating costs of $US5,567/t, according to a recent pre-feasibility study (PFS) update.

It would cost $US644m to build.

EHM is currently progressing strategic partner/offtake discussions “with leading global batteries/auto (makers)”.

INFINITY LITHIUM (ASX:INF)

Market cap: $72m

INF is currently in court fighting the cancellation of its project permit,

which is the reason for its low market cap.

‘San José’, which includes the second-largest JORC hard rock lithium

deposit in the EU, is expected to produce 19,500 tonnes per annum

lithium hydroxide over 30 years, according to a recent underground

scoping study.

It would cost ~$US532m to build.

This content first appeared on stockhead.com.au

The views, information, or opinions expressed in these articles do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in these articles.At Stockhead, we tell it like it is. While some companies mentioned in these articles are Stockhead advertisers, they did not sponsor any of these articles.

SUBSCRIBE

Get the latest Stockhead news delivered free to your inbox. Click here