Information from Michael Langford.
Have just arrived back in Australia after another a trip to Hong Kong.
I spent the week meeting industry participants, investors in the sector and a number of my Chinese contacts, and in my opinion, if you want to understand the current state of the lithium market there are two people you want to listen; Joe Lowry @globallithium and Simon Moores (recommend getting on their twitter if you aren’t already), I’ll also humbly offer myself as a reference too.
From my travels and meetings is it apparent that none of the major banks have been in Asia speaking to the people that matter, the guys on the ground. Essentially, the major banks have as much credibility right now on this topic as any other random person.
I plan on providing a more in-depth update again, over the coming days.
A key question in my mind is “why did the market not see the lithium shortage coming?”
In my view, the Chinese and other countries are operating under the assumption that lithium is an abundant easy to extract mineral. We know this is just not true and it is reflected in the market taking below specification grade product from Mt Caitlin (high mica content) and Mt Marion (high iron oxide (Fe02) content). I believe that both of these projects will continue to prosper as the reality is there is not enough lithium to supply the market, so any lithium regardless of quality will be taken.
It was not the massive increase in demand for electric bikes / electric cars / government subsidies / taxes on lead acid batteries or changes in Government policy – such as bans on petrol vehicles from 2025 in Sweden & Norway / proposed ban from 2030 in Germany. It was, in my opinion, the demand for electric buses that totally took the Chinese industry by surprise.
Just like all the technology companies that change into gold, uranium, or lithium explorers on the ASX you also have companies like Ningbo Shanshan (who recently launched an unsuccessfully, Chinese Gov’t supported, US$1.5bn bid for a 30% stake in SQM) enter the white-hot battery manufacturing space. Just 2 years ago Ningbo Shanshan was a garment manufacturer, but now has 8 operating battery plants….. (Who are we signing BOA’s with again???).
My understanding is Ningbo Shanshan wanted this purchase to secure lithium supply. Being a 30% holder was not going to guarantee that as supply was already locked up. Who was advising these guys????
In my opinion when you have US$1.5bn to spend and have not spent it on your first target you start looking for a different target, fast. Say hello to my friend, PLS….
In my opinion the EV sector has lost confidence in the battery sector to secure supply. The reality of Sichuan Tianqi Lithium stating in Dec 2015 they would stop supplying the general market (eg. battery makers) from Jan 2017 (I have been told it is actually Nov 2016) is becoming a reality. The EV battery sector appears to be moving strategically to secure its own supply.
This has the potential to cause a doubling up on potential demand as everyone scrambles for strategic reasons.
Some say that writers of the sector reports by Deutsche Bank Report / Macquarie Bank (desktop hero) / Citi Bank reports guys never actually went to China. It blows my mind that they do not even mention Optimumnano – the largest lithium ion battery maker in China, nor Ningbo Shanshan who just tried a US$1.5b bid for 30% of SQM and has 8 operating factories.
They also miss:
Industry lithium demand growth of 300% (cited by major battery groups) in demand 2017 and 200% in 2018;
Massive increase in lithium battery related factories globally (VW US$15.5bn / Faraday US$5bn etc, etc);
Government shifts towards cleaner vehicles – bans on petrol cars (numerous European countires);
Continuing drop in cost of renewable energy, particularly solar;
A final word on potential supply disruptions
We know that Greenbushes is operating in an extremely environmental sensitive area close to mine that has numerous implications for water usage and operations. As mining goes deeper, it becomes more expensive and difficult to achieve the same output.
In my view it’s entirely possible that we see delays in timing and missing of production targets for any development project, add to this the potential cost over-runs, and we have an environment where supply remains tight, and with growing demand, the value of producing and near production assets increases.
Michael Langford (aka Superninja)