Lithium prices are trading under pressure for quite a while now across the globe with prices of 99.9 per cent (min) Lithium Metal Spot in China plunging from the level of RMB 600,000 (high in April 2020) to the present level of RMB 560,000 (as on 11 May 2020), marking a fall of ~ 6.67 per cent in over a month.
As per the assessment of the Department of Industry, Innovation and Science (or DIIS), prices of lithium hydroxide (delivered to China) stood 18 per cent lower in March 2020 quarter against the previous quarter (USD 9,410 a tonne) to stand at USD 7,750 a tonne.
However, despite the current fall in the consumption-based commodities, many industry experts, businesses, are still optimistic over lithium in the long-run, with DIIS estimating the lithium hydroxide price (delivered to China) to reach as high as USD 10,400 per tonne by 2025 amidst higher electric vehicle uptake, and projections over a possible bottleneck in the lithium supply chain from 2023.
The department also anticipates that the Australian supply, which stood at 244,000 tonnes (lithium carbonate equivalent) would fall in 2020 due to a sharp pullback in the production over falling lithium prices before surging to 393,000 tonnes in 2024-25.
Over the projection of the rise in lithium carbonate equivalent prices to USD 393,000 tonnes with a rise in price to USD 10,400 a tonne, the DIIS anticipates that exports earnings that stood at $1.6 billion in 2018-19 to reach $3.0 billion (in real terms) by 2024-25 post declining to $0.6 billion (in real terms) in 2020-21.
The Lithium Price Plunge
The DIIS assesses that lithium carbonate prices (delivered to China) took a quarterly hit of 14 per cent in March 2020 and a hit of 39 per cent in 2019 against 2018 with an average of USD 7,110 a tonne in 2019.
Lithium hydroxide as stated above took a quarterly hit of 18 per cent and a hit of 49 per cent in 2019 as compared to 2018 with price averaging USD 7,750 per tonne in 2019.
Likewise, spodumene prices plunged by 4.6 per cent on a quarterly basis in March 2020 quarter and fell by 24 per cent in 2019 based on a price average of USD 515 a tonne.
Global Lithium Consumption- Trend and Present
The DIIS anticipates the global lithium consumption to stand ~ 750,000 tonnes by 2025, up by 157.73 per cent as compared to the 2019 level of 291,000 tonnes.
In the recent past, China decided to increase its electric vehicle target to 25 per cent of all new vehicle sales by 2025. Tesla, a pioneer in EVs, began production for the Tesla 3 model at its Shanghai factory during the end of the year 2019 and witnessed a good order book. The EV giant, albeit halted the production at the unit post the COVID-19 outbreak in mid-February 2020, the factory at Shanghai is scheduled to produce 100,000 vehicles per year by the end of the year, and many industry experts estimate that the factory could now achieve 150,000 vehicles per year.
Likewise, another Auto giant- Volkswagen has commenced pre-production at its Anting factory near Shanghai, and the full production is planned for October 2020, and the Company has a planned capacity of 600,000 vehicles per year, split between two factories in China.
In the recent past, the United Kingdom fast-tracked its banning of internal combustion engines from 2040 to 2035, excluding hybrid vehicles.
To Know More, Do Read: U.K. Fast Tracks Ban on Petrol and Diesel Engines, ASX Lithium Stocks Top Gainers
While the EV outlook is the very basic foundation of any lithium price-related projections, the DIIS anticipates that EV sales expand significantly over the longer term.
The Global Lithium Production- Trend and Present
The global production in 2019 stood at 495,000 tonnes of lithium carbonate equivalent, exceeding consumption considerably, which in turn, exerted pressure on prices, leading to a production pullback across the continent and the globe.
To Know More, Do Read: Spodumene Pullback- How are the Key Australian Players Positioned?
The DIIS projects the global production to surge ahead to stand at 858,000 tonnes of lithium carbonate equivalent by 2025; however, suggests that in the wake of current oversupply, and due to the rapid acceleration in the scale of vehicle manufacturing across the globe, producers are likely to pay close attention to offtake agreements, vertical integration opportunities and strategic considerations before embarking on expansion.
To Know More, Do Read: Lithium Producers Changing Tactics Amid Falling Prices
The Australian Supply Chain
The DIIS anticipates that the domestic production would gain a swing over the long-run or till 2025 after showing a loose momentum over the short-run or say till 2021 in the wake of falling lithium prices.
However, the department suggested in its March quarterly Energy and Resource report that projecting the production is quite challenging in the status quo due to the suspension of two major lithium projects- Mt Holland, operated by SQM and Kidman Resources Limited (ASX:KDR), and Wodgina Lithium prospect, operated by Mineral Resources Limited (ASX:MIN), and shift of few mines into the care and maintenance, including Bald Hill- operated by Alliance Minerals (ASX:A40), and Mt Marion-operated by Mineral Resources Limited (ASX:MIN).
Also, in the status quo, the production cut at Mt Cattlin- operated by Galaxy Resources Limited (ASX:GXY) and Pilgangoora prospect of Pilbara Minerals Limited (ASX:PLS) makes it quite challenging to project the production.
To Know More, Do Read: Galaxy- Future Ready with Low-Cost, Value Production, and Lithium Downstream?
The snippet of the forecast by the DIIS is as below:
Lithium-related Forecast (Source: DIIS)