This article (below) is posted on the Globallithium.net website by Joe Lowry, a Global Expert on lithium supply chain.  Joe worked for FMC and Livent for a long period and was deeply involved with the sale of lithium across the world.  His website and podcasts and blogs are extremely helpful in understanding lithium supply chain, from mining through refining and to the EV battery market.   

Highlights relevant to Noram are summarized as follows: 

1) “…Tier 1 battery makers are located, for the most part, in Korea and Japan (not China). Carbonate for battery use in Japan and South Korea still averages above $10,000/MT…” 

(Note that FastMarkets - Benchmark Intelligence currently lists lithium carbonate at $US7.25/kg or $7250/MT). 

2) “…brine and hard rock can make high quality lithium chemicals. Quality relates more to the resource and the skill set / process of the individual producers. Generalizations about one class of lithium (brine, hard rock, sedimentary) are sophomoric at best and should be critically examined.”  

3) “Ultimately the most damaging incorrect assumption is probably the one being made by many auto OEMs and large battery producers and that is: enough lithium will be available for their EV plans without any action on their part….Based on lack of investment it is already too late for the lithium industry to support demand of 1,000,000 MT by 2025/26.”

4) “Lithium Americas’ Thacker Pass validates the US as a significant lithium producer by mid-decade and because the US government did not allow Ganfeng to invest in Thacker Pass…”

Lithium America’s Thacker Pass is a large lithium claystone project at a DFS stage in northern Nevada.  That Ganfeng isn’t allowed to participate means that Lithium Americas needs to find a suitable partner to help provide the large Capex for this project.    

5) “By 2022, at least two large multinational companies not currently involved in lithium make significant investments enabling the industry to catch up with demand by 2030.”

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Lithium Assumptions, September 2020
See: https://www.globallithium.net/articles
by Joe Lowry 
https://www.linkedin.com/in/jplowry
(Highlights in Yellow by CTB)

Author’s note: I began this article on Monday Aug 31 but for various reasons didn’t finish it for several days. Clearly the Tesla stock price along with the tech sector was hit (not a surprise) by the end of the week but that is an insignificant detail with respect to the meaning of the article.

We are living in interesting times. As the world continues to grapple with Covid 19 and global economies struggle, US tech stocks continue their run. I am writing this on the day of Tesla’s 5 for 1 stock split. Tesla closed today at a post-split $498 up 12.6%. Although I had the original lithium agreements for hydroxide going to Tesla’s supply chain beginning more than a decade ago, I was not a real believer in the company until relatively recently.

I was in Panasonic’s Osaka office the day after they invested in Tesla in 2010. I shook my head at the idea that Panasonic was putting $30 million into the “PayPal guy’s” company.

Later, I bought TSLA at $60 and sold 80% of it at ~$240 thinking the price would crater and saying “never again” would I buy the stock. Never say never…. I recently purchased again at $1300 (a split adjusted $260). After the purchase, I beat myself up thinking I had bought at the “top” and rationalized my “mistake” by telling myself I was still buying with “Tesla’s money” since the original shares I held were purchased a split adjusted $12. What’s my point? I almost let a bad assumption get the better of me yet again. 

Although by conventional metrics Tesla is GROSSLY overvalued, I now believe if the movie “The Graduate” were remade today, the one word of advice for the future given to the character played by Dustin Hoffman would be “Tesla” rather than “plastics”. Sorry for young readers that don’t get the reference you can find the relevant clip from the movie here: https://www.youtube.com/watch?v=eaCHH5D74Fs&ab_channel=wsinful

I am making another assumption at this point. Tesla is a game changer and will continue to be one of the leaders in next generation e-transport, energy storage and related businesses. What is very clear to me is that Tesla is NOT a car company even though the CEO of newly listed battery hopeful QuantumScape called them just that on CNBC this week. Despite my early contact with Tesla, maybe I was slow to “get it” but it wouldn’t be the first time I have had to learn from my mistakes. So, with all this Tesla talk why is this post called “lithium assumptions”. I am getting to it.

The most damming assumption made by supposed experts is that the lithium chemicals going into high end EV batteries are a commodity and will behave from a supply and demand as other commodities do. Big name influencers such as Fastmarkets, CRU and Morgan Stanley continue to bang the commodity drum. Fastmarkets went so far this month as to posit that Chinese converters are now “calling the shots”. This kind of wrong-headed conclusion simply shows that much of the lithium commentary is based on guesswork and a fundamental lack of understanding. Does Fastmarkets think that spodumene producers and converters can continue to operate and expand when many are cash flow negative?

Of course, in defense of the “commodity camp” the rapid growth in WA spodumene supply did crash chemical precursor prices (aka spodumene concentrate) and the “wild west” market in China where quality is NOT king saw lithium chemical prices drop quickly as well. So how do I “explain that away”?

I am not in denial about what is going on in China vs the rest of the world. China does try to treat lithium as a commodity. The “Middle Kingdom” makes a significant percentage of their batteries and lithium products at the low end of the market. Look at where the “Tier 1” battery makers are located. For the most part, it is in Korea and Japan not China. Look at the disparity in price for high quality carbonate and hydroxide battery makers pay in Korea and Japan vs China. Carbonate for battery use still averages above $10,000/MT in both Japan and Korea. Hydroxide prices remain from $1,000 to $3,000/MT higher than carbonate price in those two countries depending on the month and the mix.  The fact is: outside China, battery quality lithium prices are much higher now than they were in 2015 although they are well below the panic market prices of 2016-2018 that were totally disconnected from the cost curve.

A fundamental flaw in the “lithium as a commodity” narrative is: despite the fact that lithium demand for battery use has been growing at double digits rates for several years (pre-covid) with 2020 being a likely exception, e-transport growth is just getting started. Demand growth from 2021 will spike - the often cited “hockey stick”. 

Significant demand for EVs on the mid to high end with the majority coming from outside of China is a “coming attraction”. The highest quality lithium chemicals with specifications many suppliers can’t consistently meet will be required to make battery packs for those vehicles. Much of the prior growth (ex Tesla) has been low to mid-end EV demand in China which has seen corners cut on battery quality and generated more than a few EV fire videos that continue to happen. 

Quality matters now and will matter even more in the future as the pressure to have higher capacity and better cycle life continues. Battery quality lithium remains a specialty chemical.

My personal favorite among wrongheaded lithium assumptions is consistently made by several commentators who repeatedly state that lithium chemicals from hard rock are the highest quality and most consistent with a corollary being: brine operations can’t feed consistent battery quality hydroxide. Both statements are incorrect. For most of the history of the lithium ion battery, the vast majority of lithium chemicals used in cathode were brine based. Chemicals made from hard rock by converters in China didn’t begin to catch up with brine-based chemicals from a quality perspective until 2014. I was involved in that transition, so I remember it well.

For more than half the life of Tesla ALL their EV cathode came from brine-based hydroxide. I had most of that business via my employer at the time FMC, now Livent, who had more than 90% share with Rockwood, now Albemarle, having a small share initially from a pilot plant that was also using brine-based feed.

Unfortunately, certain “cleantech” industry podcasts and writers know so little about lithium that they repeat erroneous information to large audiences. Recently one often cited and “retweeted” source was called out by two lithium companies for incorrect statements made on their platform. There is very little fact checking done in the podcast world and Twitter is even worse as a source of inaccurate info.

Everyone is entitled to their own opinion. Everyone that makes predictions regarding lithium or any other industry will be incorrect more often than they would like; however, there are many facts that are not subject to debate, and it is important to know the difference between facts and opinions.

In early 2014, in a meeting with Tesla regarding their recently announced Gigafactory, I advised them that the “Big 3” lithium producers did not have the hydroxide capacity to supply anywhere near what Tesla would need for a 35-gigawatt hour facility which was based on SMM’s excess lithium usage at the time about 28K MT of LiOH. My advice was to get Panasonic (their cell supplier) in tow and go to China to qualify new suppliers. At the time, current supplier Ganfeng’s product wasn’t qualified for Tesla’s cathode. The best quality and consistent hydroxide still came from FMC/Livent and brine.

Multiple hydroxide suppliers operating in China now are qualified in Tesla’s supply chain but two are US companies (Albemarle and Livent) with long processing experience from both brine and hard rock. The only lithium project Tesla has seriously pursued via purchase offer was geothermal brine not hard rock. The fact is the BOTH brine and hard rock can make high quality lithium chemicals. Quality relates more to the resource and the skill set / process of the individual producers. Generalizations about one class of lithium (brine, hard rock, sedimentary) are sophomoric at best and should be critically examined.  

Ultimately the most damaging incorrect assumption is probably the one being made by many auto OEMs and large battery producers and that is: enough lithium will be available for their EV plans without any action on their part.

Based on lack of investment it is already too late for the lithium industry to support demand of 1,000,000 MT by 2025/26. As the market moves from 60% of demand being battery related to 85% battery in the next five years, the fact that significant existing industry capacity was built before EV quality requirements were known and only a portion of that capacity can meet the new specs exacerbates the issue.

So where does that leave the industry?

My top nine assumptions (for better or worse) over the next five years are:

1)     WA Spodumene oversupply moves to tightness then short supply within 12 to 18 months moving the right-hand side of the lithium chemical cost curve up ~ 30%. Before the end of 2022, China spot pricing for battery quality lithium carbonate and hydroxide will exceed contract pricing in Korean and Japan which will increase more slowly just as it did in 2016 – 2018 returning to the mid-teens. Delayed investments in chemical capacity will create a great pricing environment for all lithium chemical producers that could last beyond 2027 depending on how much longer investment is delayed.

2)     Conversion capacity in Europe is starting up by 2024 with feedstock from Australia giving companies like Pilbara and Altura more partnership options. Wesfarmers and SQM “breakup” leaving Wesfarmers free to fully leverage their chemical skills at Mt. Holland and bringing joy to those longing for a “Lithium Valley” in WA. Wodgina starts back up after it becomes obvious the capacity is needed.

3)     The Atacama struggles to reach 200K MT of production with less than 75% being battery quality, a far cry from the 400K MT forecast just a few years ago.

4)     In Argentina, Minera Exar produces from Cauchari and begins phase II becoming Argentina’s top producer, Livent finally expands but doesn’t exceed 25K MT LCE until 2024. Orocobre proves building a hydroxide plant in Japan wasn’t a great idea and struggles to meet tight specifications. Galaxy and POSCO remain “also rans” with production of less than 10K combined by 2025.

5)     Lithium Americas’ Thacker Pass validates the US as a significant lithium producer by mid-decade and because the US government did not allow Ganfeng to invest in Thacker Pass, LAC is viewed as a standalone lithium power and the newest major. Standard Lithium & Lanxess validate special situation DLE in Arkansas. The word lilac continues to symbolize purity, innocence, happiness, tranquility, love and passion depending on the color but has no lasting meaning in the lithium space.

6)     In 2025 lithium carbonate still provides at least 55% of the LCEs going into battery.

7)     In 2025, Quebec is still touted for great potential but has zero lithium chemical production. Pallinghurst recovers from the embarrassment of their 2020 folly of throwing more money at Nemaska.

8)     By 2022, at least two large multinational companies not currently involved in lithium make significant investments enabling the industry to catch up with demand by 2030.

9)     The lithium assets of Albemarle change hands and the new entity becomes the clear global #1 lithium company edging out my friends at Ganfeng who still dominate China with their “ecosystem” but struggle to transplant their culture globally.

I am confident that more than half of my assumptions will prove valid in the coming years and, if so, maybe “Lithium” will replace “Tesla” in the advice line from the remake of “The Graduate”.

All of that said, I feel I am largely wasting my time posting articles on Linked In given people seem bound and determined to embrace whatever makes them feel good about their stock picks so I will take a hiatus from posting articles and see how I feel in 2021. I will continue to focus on serving my clients “under the radar” and using the Global Lithium Podcast as a means to assist people in learning about the industry and staying current myself by exchanging ideas with industry heavyweights that I can learn from. 

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