The Lithium Big Short

Lithium is a new oil in the age of automotive electrified.
It is widely believed that lithium will ride on the tail of the long-term trend of electric vehicles (aka, EV)
The revolution to reach higher and higher price levels has benefited investors who have a keen mind to invest in the early days of lithium miners.
In addition, this metal element is also an important part of renewable energy storage applications.
Another budding trend in the coming decades.
These seem to have been settled.
However, in terms of investment, will people be too eager for a good thing?
Lithium mining, on the other hand, is, after all, part of the natural resource mining industry, which is notorious for its deep-rooted business cycle.
Can lithium mining be spared from alternate prosperity and depression?
Is it possible to be different this time?
If the recession is inevitable, how do we investors prepare for it and want to take advantage of it?
Can the bursting of the lithium foam pave the way for the widespread adoption of electric vehicles, just as the bursting of the technology bubble led to the internet era?
In this article, we try to answer these questions on the basis of checking the supply and demand of lithium.
Although lithium is found in minerals, clay and English in many parts of the world, it is high
The main sources of all commercial lithium production are grade lithium ore and British (see here).
There is also a large amount of lithium in seawater, but extracting lithium from seawater is still not commercially feasible (see here).
Now commercial lithium recycling has begun to provide another source.
Reserves of lithium are 14,469,000 tons or 77 tons.
Lithium carbonate equivalent 2 million tons (LCE)
As at 2016, resources had increased by 39,780,000 tons, or 575 tons.
LCE 58 million tons.
Most of the lithium resources are concentrated in so-
Bolivia, Chile and Argentina are known as the \"Lithium Triangle\", followed by the United States. S.
China and Australia.
Global reserves increased by 7.
0% from 2015 to 2016.
It seems that a new primary lithium company has appeared every month in the past few years;
Some of these explorers may successfully book New lithium reserves.
Therefore, we can expect that lithium reserves will continue to grow healthily in the next few years.
At the end of 2016, the reserves of lithium could last for 2016 at 410 of production (Table 1). Table 1.
The author compiled the world\'s lithium mine production and reserves based on the US Geological Survey statistics.
Global Lithium end-
As of 2016, the market for use is estimated to be as follows: Battery, 39%;
Ceramic and glass, 30%;
Lubricating oil, 8%;
5% continuous casting slag powder;
Production of polymer, 5%;
Air treatment, 3%;
Other uses, 10%.
With the exception of 2009 at the time of the Great Recession, the demand for lithium for all these purposes has increased, but the demand for batteries holds the largest share.
Especially driven by rechargeable batteries, from 2000 to 2008, the compound growth rate of global lithium demand was 10%, and it resumed a compound growth rate of 11% until recently after the middle of 2009 (Fig. 1).
Looking ahead, Li
Giant ion battery
It is believed that the plant will continue to drive the growth of lithium demand.
In May 1, Tesla\'s gigabit plant became the focus of attention, but many other parts of the world, especially China, plan to build battery production facilities (Fig. 2). By 2020, Li-
It is predicted that the production capacity of ion batteries will reach 174 GWh, more than 6 times that of 27 GWh.
Production capacity of GWh as at 2016.
Using kg/kWh detailed in note 1, lithium demand in 2020 is expected to be as high as 522,000 tons of LCE, more than 10 times the capacity of lithium in 2015. Fig. 1.
After that, the historical needs of lithium. Fig. 2. Li-
Ion battery production facilities in different stages of construction in the world have been revised after that.
There are two ways of industrial production of lithium.
One method is to mine the lithium pyroxene mineral (LiAl(SiO3)2)
Some of Australia\'s largest lithium ore;
Lithium mining is often expensive and heavily funded.
Another way that is much cheaper than mining is to extract lithium by evaporation of lithium
Rich salt water, some of the largest salt water mining operations are located in so-
Called the Lithium Triangle.
Chile, Argentina and Bolivia
This is not only the largest lithium salt in the world, but also the ideal weather for evaporation (Fig. 3).
Lithium production in the form of lithium carbonate (Li2CO3)
Lithium hydroxide (LiOH)
Lithium chloride (LiCl)
Lithium Ding (C4H9Li)
Lithium metal (Li)
, Usually reported in lithium carbonate equivalent. Fig. 3.
A lithium salt (left)and spodumene (right)
, Modified after Wikipedia.
The global lithium production capacity is reported to be 49,400 tons (
Or 263,000 metric tons of LCE)
In 2015, only 64% were used in 2015 and only 71% in 2016.
Global Lithium production increased by 12% to 35,300 tons (
Or 188,000 metric tons of LCE)in 2016 (Table 1).
Two salt water operations in Chile (
Atacama and lanagra)
Two salt water operations in Argentina (
Olaroz and Salar del Hombre die)
And a spodumene mining company in Australia (Greenbushes)
Accounted for most of the output.
Driven by optimistic expectations for the growth of lithium demand, a total of 16 mining companies have about 17 lithium projects at all stages of planning, development, construction and commissioning, the target is the first production after 2017 to 2020 (Table 2).
This competition to improve production capacity is due to fear of missing high
In the context of the electric car revolution, prices soared and greed for expansion.
Global spot lithium prices rose 40-2016-
A year-on-year increase of 60%, fixed contract prices for lithium carbonate rose by 14%, although in China, the price of lithium carbonate at a certain point in time rose by 300%, briefly exceeding $20,000/ton, due to the temporary shortage of Australia\'s imports of lithium (see here).
According to the electric vehicle plan announced by the original equipment manufacturer of the car, the mining company began to propose demand growth forecasts; e. g.
From today\'s 15% tons of LCE consumption to 2021, lithium demand is expected to grow at a compound annual growth rate of 188-2025 (
See kton LCE by 2021-2025 (
See here and here).
In addition to planning to expand production capacity, the company is also carrying out recycling projects;
For example, a lithium recovery facility in OH Lancaster has been in operation since 2015.
2021, given that the average service life of electric vehicle batteries is 7-1, more and more used electric vehicle batteries should start arriving at recycling facilities8 years.
Is lithium capacity ahead of demand growth? Table 2.
Following the lithium America report of August 2017, the new lithium project.
To build a lithium supply-
In the foreseeable future, we calculate future production capacity by adding incremental production for new projects as they are planned to go into production.
We then compare it to the demand situation at different growth rates.
The results shown in the figure.
4 reveals: unless the vast majority of new development projects are suspended or delayed until late, excess capacity will occur, so if the price of lithium actually starts after it is completed, it will drop significantly.
If this frustrating situation of oversupply occurs, the price of lithium may not stop falling until it reaches the level of production costse. , $4,600-
LCE 4,700/mt (see note 2).
After the price of this 75% lithium fell, a lot of high
Cost producers will be forced to stop production from pigangora, a mining company in Pilbara (OTCPK:PILBF)
Mount katzlin through the galactic resources (OTCPK:GALXF)
For Chinese producers
Some of these producers may have to file for bankruptcy, while others may be acquired by stronger competitors;
The industry will therefore integrate to eliminate excess supply.
Only some of the lowest.
The cost lithium business will be able to produce products below cost, and its production will be sufficient to meet the market demand, including La Negra from the lowest cost to the medium cost, abemar Chile (ALB);
Olaroz lithium Phase I and II, Orocobre, Argentina (OTCPK:OROCF);
Atacamasar, Chile (M2)SQM)
And Albemarle;
Assets of Yabao 3;
The women\'s federation of Argentina and Cuba (FMC)
Greenbushes, Talison, Australia, 50: 50 joint venture between Albemarle and Tianqi Lithium;
Marion lithium project Australia New Metal Co. , Ltd. (OTCPK:RDRUY)(Fig. 5). Fig. 4.
Comparison of production capacity profile and demand growth of 15% (the base case)
, 25%, 35%, and 45%, the authors use the parameters here and here for calculation. Fig. 5.
2020 LCE production costs, revised after a presentation by lithium USA on August 2017.
This recession should not be surprising for those familiar with the natural resource extraction industry;
Prosperity and depression are part of the life of the mining and oil industries.
What is unique about the lithium cycle is that it is mainly supplied-side self-
With little demand, the boom and the recession alternate.
Reduce the pressure on lithium prices.
The seeds of this anticipated lithium excess event were sown long ago, when the miner\'s greed was first provoked by signs of rising lithium prices (Fig. 6).
Paul Gait, analyst at Alliance Bernstein.
In a report called \"Lithium: huge short\" late last year, said that although demand for lithium could double, \"Lithium mania should end with tears \"(see here). Fig. 6.
The mineral resource development cycle and life cycle of the mining project modified after Harazz.
Ironically, in a report in May 2017, lithium giant alble le even described in detail the \"long-term recession period\" between 2018 and 2020 \"(see here)
This makes us wonder, what is Chile\'s biggest competitor? A.
In short, there are square meters in the plan.
Historically, SQM plays the role of an industry leader, using pricing actions to constrain other market players, and to block people eager to enter the industry. In the late-
1990, just as the price of lithium was close to making the mining of lithium ore economically viable, the square meter flooded the market and the price dropped from $4,000/ton to $1,400/ton, the ambitious new business was effectively slaughtered.
In October 2009, when Bolivia began to consider the development of its huge lithium resources, SQM again reduced its price by 20% while increasing its production capacity by 40,000 tons per year (see here).
So it\'s a bit unusual for the lithium giant to sit on his hands for a long time and watch many new entrants invade what it thinks is home turf.
Although we are confident that an amendment is coming up soon, we cannot determine the exact time at which the amendment will take place.
In fact, we wonder if anyone can predict it.
However, when it does happen, those who invest heavily in higher areas
Cost lithium producers, especially junior explorers currently being promoted, may lose their shirts.
So cautious investors know that he should avoid the vast majority of primary lithium producers.
He will limit his lithium position to less than full, and will remain in a professional company most of the time. e.
Yabao, square meters, Federation of Cuban women and
Small players with low funds
The cost project is coming into production.
He might even consider shorting some primary lithium names that are mostly hype and lack of verifiable substances.
In addition, he made sure he would have enough money to support the lithium professional stock on the truck as well as the high
The quality small players who survived the trials and tribulations of the industry recession were cheap at some point in the recession.
After the bubble burst, the lithium giant may get some quality assets at the price of a song, which will eventually become stronger as excess capacity is eliminated;
If not acquired, the surviving small producers will be able to experience tremendous growth from then on.
We will show our bottom at the Laurenson Institute. up, in-
Some of the lithium producers mentioned in this article have conducted in-depth research on the subscription members of TUOH, a member of our search for exclusive services in the Alpha market.
We invite you to register here and visit our actionable investment paper. 1. In reality, Li-
The lithium used per kilowatt hour for ion batteries is four times the theoretical amount.
After considering the cycle-
Relevant capacity attenuation, purification of raw material technical grade li2co2 into low-
Sodium battery grade material, the final available battery capacity per kWh requires about 3 kg lithium carbonate (see here). 2.
Lithium only represents insignificant (
From below 2% to 4-
5% look here and here according to various estimates)
Part of the cost of battery production.
As a result, battery manufacturers may not apply bargaining power to lithium miners.
Therefore, they are not sensitive to fluctuations in lithium prices.
Disclosure: I/we have no positions in any of the stocks mentioned and no plans to start any positions in the next 72 hours.
This article was written by myself and expressed my views.
I received no compensation (
In addition to Seeking Alpha).
I have no business relationship with any stock company mentioned in this article.
Editor\'s note: This article covers one or more microcap stocks.
Please note the risks associated with these stocks.