One of Rio Tinto’s biggest local investors has delivered a warning on lithium — a sector in which Rio is considering becoming a major player — declaring that while battery demand is expected to soar, new lithium supply will cap prices.
The warning from Colonial First State’s head of global resources, Todd Warren, comes ahead of an investor briefing from Rio chief Jean-Sebastien Jacques and senior executives in Sydney on Monday. More detail on Rio’s plans to invest in new metals to capture disruption-driven demand is expected to be sought from investors at the presentation.
In a recent update to investors, Mr Warren said he was excited by electric vehicle demand and the prospect for renewable energy investment, but that Colonial would not invest in lithium, a key ingredient in lithium-ion batteries.
“Lithium gets a lot of the headlines, but the reality is the supply of lithium is nowhere near as constrained as copper or nickel,” he added.
Mr Warren said today’s lithium market of about 200,000 tonnes a year could double, or even quadruple, in the next five to 10 years if electric car demand grew as Colonial expected it to.
“The problem is, supply is going to come,” he said.
“We are aware of about 300,000 tonnes of new projects committed in the next three years, which is why you don’t see lithium in our portfolio.”
Colonial is to seek exposure to electric vehicle demand through copper and nickel, where he said there was “huge opportunity” for battery-driven demand to combine with supply constraints.
Rio is investigating the big Jadar discovery in Serbia, which could become the world’s third-biggest lithium mine, and has established a “Ventures” unit to look at investment in new commodities expected to experience demand growth due to disruptive technologies. Rio Energy and Minerals chief Bold Bataar, who oversees both Jadar and Ventures, will speak on Monday, while Mr Jacques told Japan’s Nikkei newspaper this month that lithium was an example of the type of commodity that the Ventures unit was looking at.
Rio is also reportedly weighing up a bid for a 32 per cent stake in Chilean lithium company SQM, valued at $US4.8 billion ($6.3bn).
Colonial’s reticence to invest in lithium is not unique but it is by no means a consensus position among big institutional investors.
The BlackRock World Mining Trust, the biggest institutional holder of both Rio and BHP Billiton shares, has taken positions in lithium miners Albemarle and Galaxy Resources.
HSBC chief economist Paul Bloxham yesterday noted that prices of lithium carbonate in Asia had jumped 240 per cent since 2015 to nearly $US15,000 a tonne.
“Rising prices are motivating significant investment plans for the battery commodities, although demand is still set to run ahead of supply for some time yet, supporting prices,” he said.
But Colonial’s Mr Warren said that nickel had a tighter supply and demand outlook than lithium.
“For a commodity like nickel, you could see 50-100 per cent growth in 10-15 years under the electric vehicle world,” he said.
Colonial is a top 10 investor in Rio’s Australia-listed stock, according to Bloomberg data.
