Frik Els | June 9, 2022 |
A hard rain is unlikely to fall. Rongda Lithium’s mine site in Sichuan.
At the end of May, Goldman Sachs rattled lithium stocks after the investment bank declared the battery metals bull market “over for now”.
Goldman called today’s lithium levels a “fundamental mispricing [that] has in turn generated an outsized supply response well ahead of the demand trend.”
Goldman predicted an average around $55,000 a tonne for this year, but its forecast for 2023 was particularly eye-raising – a very precise $16,372 a tonne.
The widely quoted report prompted a sell-off in lithium stocks, with heavy losses across the board. Many in the sector are still down by double digit percentage points since the report, damaged further by general market weakness.
In a new note, Benchmark Mineral Intelligence, a battery supply chain and price reporting agency, responded to Goldman’s central thesis that the lithium market is ready to “pivot towards a prolonged phase of surplus starting this year.”
Benchmark outlines five reasons why it feels the call was wrong:
The low quality of China’s hard rock and brine resources means the industry cannot rely on feedstock from the country to meet market demand;
“Capacity does not equal supply” with the example of Tianqi Lithium’s Kwinana refinery in Western Australia a case in point with a decade long path from announcement to full production (now targeted for 2025);
New lithium supply comes at a higher cost base as deposits with unconventional mineralogy, lower grades, and higher strip ratios are developed and new, often smaller, converters struggle to keep costs down;
“There is no single lithium price” – a large portion of the market is under long term fixed and variable price contracts, meaning it will take time for spot and contract prices to converge;
A significant portion of chemical capacity is being used to reprocess material that does not meet downstream specifications – this “merely represents lower efficiency production rather than the introduction of new lithium units to market.”
Benchmark expects the market will remain in structural shortage until 2025 and expects changes to pricing mechanisms and increasing contract deals:
“As the market wrestles between long-term supply security to fuel the lithium ion economy, and increasingly market-led pricing mechanisms to incentivise supply growth, the era of lithium market volatility is likely just beginning.”
Click here for the full note at Benchmark.
“Capacity does not equal supply” with the example of Tianqi Lithium’s Kwinana refinery in Western Australia a case in point with a decade long path from announcement to full production (now targeted for 2025);
New lithium supply comes at a higher cost base as deposits with unconventional mineralogy, lower grades, and higher strip ratios are developed and new, often smaller, converters struggle to keep costs down;
“There is no single lithium price” – a large portion of the market is under long term fixed and variable price contracts, meaning it will take time for spot and contract prices to converge;
A significant portion of chemical capacity is being used to reprocess material that does not meet downstream specifications – this “merely represents lower efficiency production rather than the introduction of new lithium units to market.”
Benchmark expects the market will remain in structural shortage until 2025 and expects changes to pricing mechanisms and increasing contract deals:
“As the market wrestles between long-term supply security to fuel the lithium ion economy, and increasingly market-led pricing mechanisms to incentivise supply growth, the era of lithium market volatility is likely just beginning.”
Click here for the full note at Benchmark.
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