An analyst told a Melbourne mining conference that as investors don’t understand the lithium supply chain, lithium stocks have taken a beating. Helping thrust the sector down analysts from Macquarie and Morgan Stanley have fueled lithium over-supply concerns this year.
Analyst Reg Spencer from Canaccord Genuity mining estimates that there is a lack of understanding in the complexity and depth of the supply chain and that’s confused a lot of investors. Mr. Spencer told the International Mining and Resources Conference, from many companies that are operating in this sector, that misunderstanding is leading to volatility in share prices.
He said, what was before potential bottlenecks in processing, the supply chain from mine or brine to market can take up to a year. With deep consequences for the demand for key raw materials that go into manufacturing the batteries, the demand from electric vehicle battery makers was certainly a mega-trend.
With a global penetration rate of 14 percent, Canaccord believes by 2025 global electric vehicle or EV sales will total 12 million units annually. About 2 million EVs will be sold this year, by comparison which was double than last year’s sales.
A Nissan Leaf electric car, with a 45-kilowatt-hour battery requires about 35kg of lithium carbonate or lithium hydroxide. Based on Cannacord’s forecast that equates to almost 400,000 tonnes of lithium needed for EV sales in 2025, for EV batteries alone.
Mr. Spencer said, noting that global non-battery use of lithium was about 110,000 tonnes a year compared to the lithium market last year, which was approximately 200,000 tonnes one can see where this market is starting to go.
What would also increase lithium demand, is a shift to higher energy density batteries. The almost overnight shift in preference towards nickel-cobalt-aluminum and nickel-manganese-cobalt batteries increase the requirement of lithium by up to 50 percent, the traditional lithium iron phosphate batteries are about 7 percent lithium.
Not all lithium dug out of the ground goes into batteries, the key point investors are missing, according to Mr. Spencer is that there is a lengthy supply chain lag. To be converted into lithium carbonate or lithium hydroxide spodumene producers send their raw material off to China, while brine producers typically produce the carbonate or hydroxide compound themselves.
Before the final battery product is sold to car makers and manufacturers of electronics, the hydroxide or carbonate is then sent to a cathode manufacturer, which on sends its cathode product to a battery cell or pack manufacture.
The impact on supply and demand dynamics, supply chain lag and the build-up of inventory in that supply chain and what happens to price are some other implications. Hard rock mines are where Canaccord predicts that by 2025, 70 percent of all new lithium supply coming into the market and will reach almost 1 million tonnes by that point. Hard rock deposits are easier to mine, they typically have a shorter ramp-up time and capital costs are lower. From projects like Mineral Resources’ (ASX: MIN) Wodgina mine and there was also 10 to 15 percent conversion losses and 80,000 tonnes was direct shipping ore, of the 200,000 tonnes of LCE that was dug up last year.
Not only from the uptake of electric vehicles and increasing penetration rates, analysts continue to underestimate demand, but also the actual physical demand for lithium.
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