Lithium costs reached unprecedented heights in 2021, and regardless that they’ve been stabilizing at elevated ranges in latest months, they nonetheless have room to develop, in keeping 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 via the last decade for a market that retains rising yearly.
Learn the interview beneath to be taught extra about his ideas. You too can 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 evaluate with what is going on within the markets proper now?
Daniel Jimenez: I’d say there’s a typical understanding that demand is robust, that it should proceed to be rising at a stronger price than provide and that almost definitely within the subsequent few years there can 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 turning into an increasing number of difficult?
DJ: It’s turning 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 in fact privilege these sorts of accounts, relatively than getting new prospects. So it’s troublesome for someone 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 shouldn’t have too many initiatives developing into manufacturing over the following two years; initiatives normally have delays, normally have problems within the ramp-up section. It is also very dangerous to depend on a challenge earlier than it is really in manufacturing and earlier than you face the fact of what this challenge can actually do.
So primarily patrons at the moment, once we speak in regards to the subsequent three years, they need to attempt to get into the books of current producers, who’ve most likely a lot of the ebook already accomplished for all their expansions.
INN: Trying then on the producers’ aspect of the equation, what do you suppose is the largest threat for them within the present market? And the way does that evaluate to the dangers confronted by explorers and builders?
DJ: From a producer’s perspective, I don’t see too many dangers in the mean time, and I additionally don’t see a lot threat on the exploration aspect. Really, exploration has develop into so much 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 at the moment.
From the challenge builders’ aspect, a very powerful threat is allowing. Allowing has develop into a really troublesome concern 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 an enormous group of explorers who even have useful resource and know-how dangers. After we speak about direct lithium extraction, the initiatives actually have a threat — they at the very least haven’t been massively scaled up on the earth, and whether or not they may work with particular new assets or completely different assets is a query mark. Then you have got assets, or different sorts 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 believe 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 we’ve an excessive scarcity of lithium at the moment, it is slightly 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 increased. In case you suppose 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 might have been the value again in March, April if none of that might have been occurring. 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 suppose that costs will stay excessive or very excessive, and by that I imply above US$40 (per kilogram), at the very 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 won’t be ample to fulfill that demand. Due to this fact, lithium can be a limiting issue for the elevated penetration price of electrical automobiles (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 trade. 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 might modify downwards. To what degree at that time? These 5 years can be years during which we’ll see costs above greenfield improvement incentive value ranges, so most likely 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 in a position to meet demand, what are among the strikes you are anticipating to see from unique tools producers (OEMs)? And from the trade?
DJ: OEMs are beginning to make large efforts actually in attempting to safe their lithium provide. And whether or not they do it via the provision chain, battery suppliers or cathode suppliers or straight, come what may will work. However what we’ve seen is that an increasing number of OEMs are beginning to take management of that on their very own.
INN: Do you anticipate large oil corporations to make acquisitions in lithium going ahead, or to accomplice with lithium corporations? And what different sorts of large corporations do you suppose might soar into this market by way of mergers and acquisitions or partnerships?
DJ: Sure, I believe oil producers are trying into this trade. We simply had the announcement of ExxonMobil (NYSE:XOM) getting concerned, and we’ve seen them during the last years wandering round within the convention.
Now, by way of the scale of the trade, it is exhausting for me to consider {that a} large oil firm can be getting concerned in a single lithium challenge. It is just too small for the size they function. So I might think about that relatively 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 turning into a lithium miner at the moment. We’re seeing numerous new gamers rising everywhere in the world. Which sort of firm do you suppose can be greatest positioned to achieve the sector?
DJ: I’d suppose that greater than the sorts of corporations which can succeed, I believe we’ve to consider the assets, the jurisdiction, the know-how, the folks. 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’d say the success price can be considerably increased with initiatives which incorporate of their groups folks with experiences from completely different fields. And once we’re speaking about brines, that have must 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 provision dynamics within the lithium market are additionally altering at a regional degree. What do you suppose the west can be taught from China, and Asia as an entire, relating to constructing its lithium provide chain? And what do you suppose it could do higher?
DJ: It is slightly 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 in-built Japan, Korea and China at the moment.
It is vitally troublesome to do something upstream, once we’re speaking about cells, cathode manufacturing, when you’re not centered the place EVs are being produced on the finish. This provide chain is beginning to transfer within the route of Europe, EV manufacturing has moved to Europe. It is instantly adopted by cell manufacturing. And we may 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 believe that is going to naturally occur as soon as electrification of vehicles turns into large. And I believe the relative benefit China has at the moment can 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 in some unspecified time in the future and transfer away from China?
DJ: I believe almost about EV manufacturing, to cell and to cathode manufacturing, they may have the ability to do it. What Europe and North America will most likely by no means have the ability to do is to be ample in lithium. And just because lithium will not be current at scale, on the grade, on the extraction prospects that you’ve in South America or in Australia.
The independence can be relative within the sense that Europe and North America will most likely all the time rely upon Australia and South America. China at the moment is extraordinarily susceptible. It has very, little or no lithium as a useful resource. So I do not suppose that the west so to say is below any main threat, long term. This can be a pure motion of the trade or the upstream little by little.
INN: One other large theme right here on the convention has been recycling. Do you suppose this may develop into a big a part of supplying lithium sooner or later? And when do you anticipate this to occur?
DJ: Immediately 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 throughout the provide chain, it hasn’t gone out into the market.
I believe we’re solely going to begin seeing large recycling as soon as batteries in EVs come to finish of life. And that can be occurring, if we assume {that a} battery may have a lifetime of seven to 10 years, in the direction of the tip of the last decade. That in fact can even change the general provide/demand image fairly considerably.
Based mostly on the numbers we’ve performed with, and once more that is arithmetic, you may simply suppose that a lot of the demand will increase from 2035 onwards can 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 during which the excessive quantity of main lithium, so mined lithium — the requirement of incremental demand, 12 months by 12 months — can be lowering. So throughout this decade, we have to produce considerably extra lithium yearly. However in the course of 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’d anticipate to have a decent marketplace for lithium. We are going to most likely see excessive costs, and that may very a lot outline the following 12 months, that means the difficulty 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 is likely to be one thing which takes off this strain and brings some aid in the direction of the second half of this decade — however for at the very least the following 4 years, I believe provide must be considerably greater than what we’ve at the moment. And I would relatively say the chance is that provide 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.
