Hey everyone. Our mate JL is back. No GXY bashing in this one, even complements AT. Some interesting points he makes in the article.
I guess the key take is that be it hydroxide or carbonate, SDV, JB or MtC our products will be needed and a bright future is ahead. But, too make the most of the opportunity we need to go downstream. Not something any of us can argue about and hopefully in the cards.
Looks like markets are a bit shaky again, but who cares all the signs keep showing what is coming and how LIT product is going to be needed. GXY is in such a good position on all counts, making good progress. For those that can grab buying opportunities as you can. It may seem that we are lost at sea, but if we just look a little past the next wave the treasury island that we seek is on the horizon. It's a matter of time before the tide takes us in. Enjoy the read!
BTW it seems JL likes to read HC. Is he mayby asb, prasanth or someelse in disguise giving us a little bit of banter each day? LOL only jokes... maybe...LOL
Lithium Blunders: from the Big 3 to Oz
- Published on March 11, 2019
Joe Lowry
One of the World's Leading Lithium Market Experts
94 articles
The move toward electrification of transportation and the grid has ushered in a new era for the lithium world. Historically, lithium was a niche or even a sub-niche sized market albeit with a great diversity of demand drivers: glass, grease, aluminum, pharma, synthetic rubber, dyes….. well, you get the picture.
Then this battery thing happened.
No matter what the likes of Morgan Stanley and Macquarie tell you – the lithium world is not adequately prepared to supply the battery market in the next five to seven years.
From the 1990s, lithium demand for rechargeable batteries grew rapidly but from such a tiny base that it was only a small part of total lithium demand for a full decade. Initially Japan was the sole supplier of lithium ion batteries. I know the story well – the company I worked for at the time, FMC Lithium, was the first commercial supplier of lithium to the rechargeable battery world. Fortunately for me, I was responsible for both lithium products the nascent industry required – lithium carbonate and lithium hydroxide.
My lithium history goes back to the pre – SQM “duopoly days” when it was just FMC (now Livent) and Cyprus Foote Mineral (later Chemetall Foote then Rockwood and now Albemarle) producing lithium for the global market outside of China and Russia which had local suppliers.
The two supplier world in battery lasted until SQM entered the fray, forming what became known as the “Big 3”. Initially SQM’s quality wasn’t good enough for battery use. Despite the drastic price cuts they offered the likes of Sony and Matsushita (read Panasonic) they were slow to gain share. In the early days, FMC was the 90%+ supplier to the battery market with Cyprus Foote the distant #2. From the beginning, the quality required for battery use was more stringent than industrial uses like glass and grease. As the years passed, battery quality specifications became tighter and tighter.
On the demand side, Korea was a reasonably fast second battery production entrant. Later, BYD and several others in China followed. Be patient, yes, I am going to make a point here…….
The “Big 3” were self satisfied – fat, dumb and happy with the world as they knew it. They enjoyed this new battery demand but were unsure where it was going and were slow to change their processes to accommodate it.
At one time or another – all three companies publicly doubted that the battery market was going to “outgrow” the existing industry structure. That, my friends, was Big 3 “blunder #1” – not understanding that battery demand was the future of lithium and preparing accordingly.
As recently as 2015, less than 25% of total lithium demand was from the lithium ion battery market. Although the “Big 3” made some product improvements to respond to the quality specifications of the battery market such as particle size modification and lowering of metallic contamination most “improvements” were post production manipulations of the product rather than true process changes. On the chemical specification side, the basic practice was to rely on lot selection which worked quite well when battery product was less than 30 to 40% of demand. Each producer’s situation was a little different in terms of how much of their standard production met the chemical requirements for battery quality but suffice it to say none of the “Big 3” was prepared to deal with a lithium market like today where >60% of the product has to be battery quality. By 2025, battery demand will be ~85% of the market. If there ever was a “tsunami” in the lithium world, it has not been supply – it is demand of battery quality material vs technical/industrial grade.
Of course the quality issue was known but it was never adequately dealt with. Iggy Tan at Galaxy Resources tried to address it in designing the Galaxy carbonate plant in Zhangjiagang, China which Tianqi now owns. Rockwood, now Albemarle, tried to address it with LaNegra II. Unfortunately, neither project was more than partially successful. Failing to adapt to a market dominated by battery quality requirements was Big 3 “blunder #2”.
I moved to China from Japan in Q3 2005. At that time, I was already selling to and buying from Ganfeng in my role of Managing Director, Asia Pacific for FMC Lithium. One of my first meetings after setting up an office in Shanghai was with a manager from Tianqi. By this time, Tianqi had acquired state owned Shehong Lithium but was, like Ganfeng, a small provincial company. I didn’t do much business with Tianqi but made regular trips to Chengdu often meeting with Chairman Jiang Weiping who made his ambitious plans for expansion in the lithium world clear. I spent much more time with Ganfeng. The “China story” was rapidly unfolding. I began telling the senior management of FMC that both companies were in the “T” category in an industry SWOT analysis.
Ultimately all of the Big 3 considered an acquisition attempt of Ganfeng. However, prior to that Ganfeng actually offered SQM a 15% interest for free simply to secure raw material. In an incredibly short-sighted move, SQM turned Ganfeng down. A couple of years later SQM tried to acquire Ganfeng. Li Liangbin and Wang Xiaoshen of Ganfeng discuss the attempt to give a portion of their company to SQM on Episode 25 of the #GlobalLithiumPodcast “Not: Lost in Translation”
http://lithiumpodcast.com/podcast/e25-not-lost-in-translation-没有）迷失在翻译中/
The above is particularly ironic given that now SQM is now partially owned by the other, now major, Chinese lithium company - Tianqi.
Living in Asia and interacting with customers and suppliers on a regular basis I could see what was happening in China, Japan and Korea quite clearly. Unfortunately, the top management of the major lithium companies realized much too late that Ganfeng and Tianqi were much, much more than potential “bolt on” acquisitions. Failure to see the “rise of China lithium producers” is Big 3 “blunder #3”
Last week was the 19-year anniversary of my move to Japan to live and work. Five and a half years later I was living in China. It was a privilege to have seen first hand and participated in the rise of lithium in Asia. That said, in my opinion the party is just getting started for lithium and that brings us to the next round of miscues.
The failures of the former Big 3 helped speed the growth of Ganfeng and Tianqi and created opportunities “Down Under” which leads me to a “blunder in progress”.
Emerging Blunder #4, comes from the ‘Merry Old Land of Oz”. I am a big a fan of Australia. Friendly, hard working people, great food and a long standing mining culture. The strength of Australia is also their weakness. Too many Aussies talk about “lithium mining”. Yes, lithium is mined in Oz but that is the easy part. The alpha but certainly not the omega. The rest of the world clearly understands that lithium is really a chemical business with, in some cases, a mining component.
Australia and many newly minted lithium pundits born and bred in Oz talk about Western Australia as the #1 lithium producer on the planet. To those who think that is true, let me ask – if you are #1, why aren't you currently in the top 3 in lithium value capture? I will leave my Aussie readers to curse me on Hot Copper while they search their souls for the answer or re-read the “The Lithium Valley”- LOL. Please listen to Episode 23 of the Global Lithium Podcast where one of your own talks common sense about capturing value downstream. I admire what “the man from the land down under” aka Ken Brinsden has done at Pilbara. He understands the future and has a practical plan to get there as Pilbara grows. He knows that the future lies in Australian companies capturing value from both mining and lithium chemical production.
http://lithiumpodcast.com/podcast/e23-a-man-from-a-land-down-under/
Not to worry only two more “blunders to go”. I find it entertaining when I read someone with no real lithium industry experience stating that his forecast is for lithium hydroxide to grow 43% per year for the next five years. Really? Based on what? More than likely what he read on #lithium yesterday on twitter. Quite a specific number without context or supporting documentation. Why not 43.2% since the person is likely guessing rather working from a well thought out model anyway?
Yes, lithium hydroxide is growing at a rapid pace but the narrative that high nickel cathode growth will cause hydroxide demand to exceed carbonate in the next few year is not something most lithium insiders believe especially with the much slower than expected 811 NMC implementation. Blunder #5 – expecting that the future of lithium demand belongs to hydroxide. Come 2025 more carbonate than hydroxide will still be sold – take it to the bank. Lithium demand will definitely be more balanced between the two products but the demise of lithium carbonate has been greatly exaggerated.
I will repeat an old point here - the number of lithium experts is very limited. While I respect the skills of a few analysts with no industry experience – that number is also very small. I trust lithium experts with names like Vijay and Gerrit and analysts with names like Chris, Jingwen, Andy and Alex. A few of the "less than gifted amateur analysts" out there seem to think that a large volume of words makes their work more credible. That is rarely the case.
In terms of listening to lithium top execs talk about the market – Wang Xiaoshen, Jon Evans, Ken Brinsden, and Anthony Tse are names I like. If you have the opportunity to hear them speak, I recommend it. All four have been podcast guests.
