Lithium Update

Richard Hemming

EV sales are going through the roof and Lithium producers are set to profit off of looming supply deficits, so where will you invest?

The upward price momentum for lithium prices is continuing for lithium products throughout the supply chain, and just as important, is forecast to continue well into the future.

High profile market researchers such as Benchmark Minerals are forecasting sustained elevated product pricing due to increasing demand for lithium, not met by supply, with significant lithium supply deficits from 2024. To guarantee supply, customers such as battery manufacturers, are requesting long-term agreements with lithium suppliers.

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Benchmark Minerals forecasts that EV demand will rise at a compound growth rate of 30% a year in the coming decade. In the year to October, global EV sales were 5 million units, up 130% over the same period a year ago. Europe and China are leading, up 100% and 180% respectively.

In July this year (1 July 2021/Issue 453) we said global battery gigafactory capacity planned to be achieved by 2030 had just increased by 460 gigawatt hours to 4,200GWh. The latest projections point to an increase of a further 600GWh to 4,800GWh by 2030.

The Demand

In October, Orocobre, now named Allkem (AKE) said average pricing for lithium concentrate (spodumene) shipments had increased to US$1,650/tonne CIF, double that of only three months prior! Demand has been strong because utilisation of the spodumene converters in China was rising, driving downstream lithium product output higher.

Sector flagbearer Pilbara Minerals (PLS) has been achieving higher spodumene “spot” prices at its BMX online auctions. At its inaugural online auction for spodumene concentrate in July 2021, Pilbara Minerals sold lithium at US$1,250/dry metric tonne (dmt) FOB. Its second online auction delivered almost twice the price with a winning bid of US$2,240/dmt. In its third online auction for deferred delivery in February 2022, the company had 25 online bids from 8 independent buyers. The winning bid was US$2,350/dmt.

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Over the same time period, lithium carbonate and lithium hydroxide prices have continued to rally, rising from a price range of around US$US13-16,000/tonne in mid 2021 to current prices of over US$25,000/tonne. Lithium hydroxide is generally priced at a US$1,000/tonne premium to lithium carbonate.

What Does this Mean for Investors?

The supply/demand fundamentals for lithium look very good, underpinning valuations of our sector favourites, whether they are rock or spodumene based like Pilbara Minerals (PLS), or brine based, Orocobre, now Allkem (AKE) and Lake Resources (LKE) – covered in this weeks issue. 

Stay tuned for updates on Vulcan Energy (VUL) and US based Piedmont Lithium (PLL).

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About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.

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