- Shares of Chinese lithium miners have rallied on the hopes that following a drastic two year decline, lithium prices have now bottomed.
- According to Benchmark Mineral Intelligence, oversupply has led to prices for lithium carbonate decreasing by 30% over the past year, dropping below the cost of production for some producers.
- Last month, Albemarle announced the decision to delay construction of an expansion project with the processing capacity of c. 125,000 tonnes of lithium.
Analysis and Comments
- Umicore (which is one of the biggest buyers of lithium carbonate for the cathode market) is of the view that the rock based lithium projects in Australia will struggle to earn a 15% IRR below a lithium carbonate price of $12k/tonne.
- Lithium carbonate prices are already below that level. 60% of future lithium production is based on rock based mines and hence at current lithium prices a lot of the new projects will struggle to raise funding. Only five big companies (SQM, Albemarle, Livent, Ganfeng and Tianqi) will survive in the lithium sector in the long term. Others will most likely be acquired.
- Some analysts think this is the best time to look at the lowest cost lithium miners Albemarle, SQM and AMG.
- According to Jaguar Land Rover CEO Ralf Speth, the price of EV batteries will not come down for up to another 5 years.
- Instead, he wants to see the charging infrastructure drastically improve to give EV drivers more confidence, thereby allowing car makers to use smaller, less costly batteries.
Analysis and Comments
- Battery costs could bottom higher than expected that downward price trajectory for lithium ion batteries is not linear and that cost reduction is now slowing down.
- If battery costs do not fall dramatically (which most think they won't) then the size of the battery packs will remain small and the driving range will remain limited.
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