Supply Disruptions, Production Pullbacks, Increased Subsidies- The Trident of the Lithium Space

Supply Disruptions, Production Pullbacks, Increased Subsidies- The Trident of the Lithium Space

Summary

  • Lithium prices have seen a considerable volatility due to the COVID-19 outbreak.
  • The fall in lithium prices along with production pullback instigated by global lithium mining companies could now support the lithium price by reducing the demand and supply gap, which previously remained wide due to the lithium supply glut.
  • DIIS anticipates the global lithium demand to increase by 60.45% by 2022, from 2020.
  • EV subsidy greatly assisting Lithium over cobalt. 

Lithium market has come under tremendous pressure over falling prices of various lithium products and sources, including lithium carbonate, lithium hydroxide, spodumene prices tumbling considerably since the beginning of the year.

  • Lithium carbonate prices, delivered to China, took a hit of 14 per cent from the beginning of the year to mid-June while tumbling 46 per cent on a yearly basis.
  • Lithium hydroxide prices, delivered to China, plunged by 32 per cent for the same period to stand at USD 7,508 a tonne while falling by 41 per cent on a yearly basis.
  • Likewise, spodumene prices, delivered to China, fell by 17 per cent for the same period to stand at USD 425 a tonne while declining by 31 per cent on a yearly basis.

Over the plunging prices, the lithium production scenario is becoming more volatile with many lithium mining companies across the continent, putting their operations on care and maintenance while keeping production minimal in line with the existing offtake.

To Know More, Do Read: Lithium Production Volatility and Chinese Offtake Spree; Explosive Co Extends Offtake with Galaxy

Furthermore, prices are anticipated by many industry experts to remain flat over the short- to medium-term until 2022, after which, the market is expected to tighten as electric vehicle manufacturers continue their expansions, which could support the lithium demand ahead.

Lithium Global Consumption and Future Scenario

Despite an automotive sales slump induced by COVID-19 across the globe, the Chinese lithium carbonate imports of lithium carbonate soared by 544 per cent on a year-on-year basis in April 2020  and 284 per cent for the four months, January to April 2020, on a year-on-year basis as falling prices encouraged large orders.

  • Likewise, China’s imports of lithium hydroxide also surged by 262 per cent on a month-on-month basis for April 2020, which coupled with offtake agreements undertaken during COVID-19, suggest that the appetite for lithium is quite strong across China.
  • Furthermore, reflecting on the strong global demand over weak prices, the lithium carbonate demand from South Korea surged by 28 per cent in April 2020 on a month-on-month basis.

The Department of Industry, Innovation and Science (or DIIS) now anticipates that the global lithium demand would surge by ~ 60.46 per cent from 285,000 tonnes of lithium carbonate equivalent (or LCE), estimated for 2020, to reach 414,000 tonnes by 2022.

Extended Subsidies to Push EV Sales

In the recent past, China has further extended the subsidy on EV purchase with scaled reductions from 10 per cent to 30 per cent over the next three years for vehicles with a maximum price of  USD 42,400 a unit, leading to a change in battery chemistry away from cobalt and back to lithium iron phosphate batteries, which in turn, could further support the lithium trade.

  • In early 2019, the scaling back of subsidiaries supported the consumption, and many industry experts anticipate that it would do the same going forward, a hint of which could be derived from record sales of Tesla Model 3 in China during May 2020.
  • Furthermore, Germany has recently announced incentives to support EV sales.

To Know More, Do Read: Lithium Charter, Domestic Miners, And Global Stance- KDR, MIN, A40, GXY, And PLS

EV Prices Coming in Parity with Internal Combustion Engine

Tesla Gigafactory in China is producing nearly 10,000 units a month, and with the recent change in Chinese subsidy, the Company has reduced prices of its Model 3 to retain subsidies, which along with changing battery chemistry from cobalt to lithium-based batteries could bring the costs as low as USD 100 a kilowatt hour, which could further boost the lithium demand.

  • Apart from that, the EV sales across Europe and the U.K. picked momentum during March 2020 quarter with a drop in prices from EV makers to cash-in on subsidies provided by governments.
  • Volkswagen dropped prices on the e-Golf to USD 27,000 in the lead up to the release of the ID.3, reflecting that the price parity between ICE and lithium engine is coming close in Europe.
  • Furthermore, GM gave USD 10,000 discounts on the e-Bolt model, which is also reflecting that the crossover point for ICE and EVs is much closer across the United States.

Global Production and Emerging Supply Disruptions

The COVID-19 outbreak has disrupted the supply chain for many commodities in the recent past, including copper, nickel, lithium, silver, and coupled with the fact that Australian miners are already favouring a pullback over lower prices, it could support lithium prices over the coming years.

To Know More, Do Read: Commodity Supply Chain Disruption and Australia Export Position

  • Furthermore, DIIS assesses that the global lithium production, which reached 486,000 tonnes of LCE in 2019 could plunge to 466,000 tonnes of LCE in 2022, narrowing to a gap between the global production and consumption, which previously remained considerably wide due to the lithium supply glut.

                                     

Global Lithium Production and Demand (LCE) Projections (Source: DIIS)  

  • So far, the COVID-19 outbreak has not disturbed the Chilean production; however, the lithium production in Argentina and China has been materially disrupted.
  • Furthermore, the domestic production remained down during the March 2020 quarter over low prices.

DIIS estimates that the global lithium production (LCE) to plunge by ~ 22.77 per cent from 486,000 tonnes in 2019 to 373,000 tonnes in 2020, before restoring to 460,000 tonnes in 2021 and 466,000 tonnes in 2022.

  • Both the projected figures by DIIS suggests that the global lithium production (LCE) would remain low against the pre-crisis level, which could narrow down the demand and supply gap, which emerged in the market over the lithium supply glut.

In a nutshell, lithium market looks poised to recover from the recent plunge over the coming years due to increased subsidies on EV sales provided by various governments across the globe and supply disruptions emerging from COVID-19 outbreak.

Apart from that, the recent production pullback from global lithium mining companies is estimated by industry experts to narrow the demand and supply gap, which previously remained large over the lithium supply glut.

 


Disclaimer
The video has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above video is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.

 

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