Roskill: Don’t Expect Sustained Lithium Price Uptick Until 2022
It is highly unlikely that demand for lithium will return to pre-COVID-19 levels in 2020, said Roskill’s Jake Fraser.
Like every other commodity, lithium has felt the impact of COVID-19 during the first half of 2020, with prices expected to remain at current levels for sometime.
Roskill was expecting prices to remain flat or in decline for an extended period of time, and lithium’s performance during the first half of the year lived up to expectations.
“That being said, significant price disparity does remain between buying regions, most clearly reflective in China versus ex-China markets for both hydroxide and carbonate products,” Jake Fraser said.
Buying schedules and order placements from cathode customers have transitioned from months or years in advance down to weeks in some cases, he added. “(That is) a pattern perhaps likely to continue throughout 2020 into early 2021.”
Roskill expects a sustained marketwide uptick in pricing sometime in H1 2022 due to uncertainty about a short-term demand recovery and ample stocks overhanging the market.
It is highly unlikely that demand for lithium will return to pre-COVID-19 levels in 2020.
“However, lithium chemical demand from end-use sectors is still expected to increase year-on-year to around 280,000 tonnes lithium carbonate equivalent,” Fraser noted. “(That is) owing to larger battery packs being installed in electric vehicle (EV) models and the EV sector itself forecast to see 10 percent year-on-year growth in sales.”
In the EV sector, the surprise has been Europe, where sales were stronger than many expected in the first half of 2020 despite the uncertainty brought by the coronavirus pandemic. But for Roskill, expectations should remain tempered moving forward into Q3 and Q4 of this year.
“This comes in anticipation of OEMs clearing pre-shutdown order backlogs and the four to five month demand lag from OEMs to lithium suppliers beginning to kick in,” Fraser explained. “It is not until this stage that clarity surrounding the strength of demand recovery following COVID-19 impacts in Q1 will become apparent.”
Lithium supply and future supply plans have also been impacted by the coronavirus pandemic.
“From the upstream perspective, reduced production rates and campaign mining have become a common theme amongst spodumene producers,” Fraser said. “This has primarily been motivated by a need to manage production costs amidst a backdrop of low concentrate prices.”
But for the analyst there is definitely still room for optimism, as Q2 of this year delivered some positive news on the project finance and offtake front.
Examples to keep in mind are Sigma Lithium’s (TSXV:SGMA,OTCQB:SGMLF) debt raising with Societe Generale (OTC Pink:SCGLF,EPA:GLE), as well as Sumitomo’s (TSE:5713) agreement with American Manganese (TSXV:AMY,OTC Pink:AMYZF) for rights to sell its future carbonate production in Asia.
“I think such news in such a challenging period is a welcomed reminder that lithium’s long-term growth prospect remains strong. We are now starting to see major downstream players stand up, take notice and make moves toward establishing future supply security for their respective supply chains.”
Giving his thoughts on the push to localize supply chains, he pointed to a key trend in the last few months that has been accelerated by COVID-19.
“I think it’s important to address the elephant in the room, being China’s refining capabilities, and the difficulty in reducing overall industry reliance in the short term,” Fraser said.
He added that there is a growing push for “homegrown” industry development, as is being witnessed in Europe and North America, which does provide an exciting prospect for local juniors developing integrated mines and/or reprocessing facilities.
“But this will require time, capital markets to open their doors and importantly the development of technical expertise locally in order to deliver on the stringent quality standards of cathode and cell makers,” Fraser said.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
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