Global Lithium’s Joe Lowry returns to discuss the lithium supply and demand outlook from participants such as Lithium Americas Corp (TSE:LAC) Tesla Inc (NASDAQ:TSLA) Volkswagen (AMS:VWA), Albemarle Corp (NYSE:ALB), and Orocobre (TSE:ORL) and the evolving electric car industry’s insatiable new benchmark Lithium Hydroxide price in China at US$20,000 a tonne.
Listen to the podcast interview with Joe Lowry
James West: Joe, welcome back to the show.
Joe Lowry: Well James, thank you for having me again.
James West: Joe lets talk about the demand side of the global lithium equation today. We see at this point all the major automotive brands now transitioning to an electric product future with, for example, Volkswagen planning its own gigafactory and up to 15 of these facilities, and we’ll use Dr. David Deak’s definition of a gigafactory being something that can produce up to 100 gigawatt hours per year of battery capacity. Does that change the outlook for lithium demand in your view going forward?
Joe Lowry: Well I mean, I don’t think VW specifically changes anything, but I think you hit on the trend, and the trend is to get the cost of the battery down as low as possible, and in order to do that, scale is important.
I spend a lot of time in Asia. In 2014, I was in a gigafactory that was in the first phase of development in China, and this is long before Tesla started up. So this has been a theme that, Tesla has gotten most of the publicity, but it’s global. Yeah, I mean, obviously, I don’t know if 15 will happen, but even if 5 happen, it’s huge for lithium demand. So I agree, but as you stated the question with VW, I don’t think – I think it’s so broad-based that I wouldn’t point out one specific company as being more specific than the others.
James West: Okay. What about the lithium price? We recently heard of Chinese prices of high-purity lithium for batteries fetching as much as $20,000 per tonne; is this for real? Is this a reflection of supply constraints now, or is it more of a longer-term trend?
Joe Lowry: Well, let’s define terms. You know, I use the term battery quality, because there really isn’t – first of all, you don’t need what truly is high purity lithium carbonate or lithium hydroxide, to make a battery. You do need a certain set of criteria to be met, but it’s really the juniors that have probably done the biggest disservice by talking about oh, we’re going to do 99.9 carbonate – it doesn’t matter. There is a certain spec, let’s just call it 99.5, but actually, the most important thing is the stability of the impurities, not whether it’s 99.5 or 99.4 or 99.6.
So with that preamble out of the way, now let’s just say that lithium carbonate and lithium hydroxide are priced differently; hydroxide sells at a higher price. So the 20,000 a tonne is a real price. Even carbonate got that high in China during spike. I don’t think that, I don’t think 20,000 is the new normal; I think what you have now is a situation where the supply of lithium is tight, it’s going to continue to be tight for the next few years, and pricing of spogimene from the two mines starting up in Australia that represent most of the new material going into the market in the next few years, is priced at three times what spogimene was selling for a few years ago.
So that is going to flow to converter capacity in China, and what you’re going to have is, the price umbrella is going to be at a much higher level than it was in the past. So I see carbonate price at 12 to 14 and hydroxide from 18 to 22 outside of China this year, and yeah. There’s lower prices and there’s higher prices. Albemarle leads the low price camp, and hydroxide going to Tesla is the lowest price because everybody seems to want to do business with the Tesla supply chain. But if you factor out the aberrations, the new normal in carbonate in my mind is 12 to 14, hydroxide is sitting about $6 higher than that, and it needs to be to incent future investment in hydroxide as the world goes to higher nickel cathodes and those blends of NMC that require hydroxide as a feedstock.
James West: All right. I’ve noticed you generally disapprove of some individuals’ categorization of the suppliers of lithium from spogimene versus those who supply it from brine as ‘embroiled in a war’. Is the lower cost brine sources out of Latin America not a threat to the viability of hard rock sources in Australia, Africa and elsewhere?
Joe Lowry: Okay, well, let’s take a step back. First of all, if you look at the last five years, most of the capacity that’s come onstream to meet the growing demand has been hard rock. I mean, you’ve had woefully small brine; Orocobre’s been a mess, they did about 11,000 tonnes last year, not the 17,500 that they were promising everybody early in the year to be at that level by the second half.
La Negra II, from Albemarle, is late – it’s late by a few years, now. So the only real, the most significant surprise in brine output was SQM’s very high production level last year. Chile was up 30 percent last year; it was virtually all SQM. But you take those all together, and they don’t really put a dent in the growth in demand. The real saviour to the supply-demand balance has been hard rock.
That’ll change as Cauchari develops and Sal de Vida develops, but that’s going to take a few years. So what I’ve been saying is that there’s room for both sides, and you have a whole class and it’s mostly in Australia, of these new lithium experts who are refugees from other commodities, who don’t know much about lithium but are trying to run pump-and-dump on every stray hard rock project in Australia, and making a lot of claims about why hard rock is better.
I don’t think the brine guys are fighting a war, because they don’t need to. I think it’s mostly form the hard rock side having a little bit of a chip on their shoulder when they don’t need to, because there’s room for both.
James West: All right. Last year we saw the world consumption of new automobiles at 75 million units, of which less than one percent were electric. At what point in the future do you see the number moving above 50 percent of new car sales being electric?
Joe Lowry: Well, I am not that smart. You know, when you take a number like 50 percent…if you took your 75 million and said you had a 50 percent penetration, and ran that back to the amount of cathode you needed and the amount of lithium you needed to make that cathode, you’d have a real problem. It’s going to take some time to have enough lithium to do that number.
I think that in a 2025 world, if you look at a 10 percent to 12 percent penetration, look at the numbers that David Deak’s put out in his recent presentation. His numbers are a little more favourable, probably, than mine are – well, in terms of, I believe the lithium per kilowatt hours is a little higher than he does, but he participated in the very high end at Tesla and there’s some more inefficient operators out there. But you know, if you’re going to say it’s 60,000 to 70,000 tonnes per million vehicles, and you had even a 10 percent penetration, it’s going to be a real challenge to have the lithium online by 2025 to do that.
James West: Well, so it’s a good time to be a lithium investor, bottom line.
Joe Lowry: It is, it’s a very good time, and I didn’t mean to give a non-answer to your 50 percent question, I just don’t know when that’ll happen. But I think that’s way out in the future. I think that’s 20 years away, and I know there was just an article in The Economist about how it’s going to happen faster than everybody thinks, and you know, that may be true. But in order to get to 50 percent, again, you’re going to have to have billions of dollars of investment in lithium. Billions. And look at how much has been invested in the past few years. It’s been woefully inadequate.
James West: Right. Well, that might just be the opportunity! All right, Joe, let’s leave it there for now. A very enlightening conversation as usual. Thank you so much for your time today.
Joe Lowry: You are very welcome.