IMAGE SOURCE: GETTY IMAGES, lithium brine salt, found on "The Motley Fool" Lithium Supply-Demand equilibriums by 2020 - Part 1 : How much new lithium supply should we expect by 2020 ?
How much new lithium supply should we expect by 2020 ? To answer this question, I compiled the following table where I estimate the expected new lithium supply that will hit the market based on three different scenarios : an optimistic scenario, a conservative scenario and a pessimistic scenario.
To do so, I first started by identifying the major new and expansion lithium projects in the pipeline that are the most likely to be producing by 2020. My criteria to include any project in this list were pretty simple yet stringent: each project should have already a published Definitive Feasibility Study, and the project should be either fully or partially funded (generally these projects have off-takes too) and thus they are ready to go as soon as possible.
These stringent criteria exclude de facto some usual suspects and well advanced projects in the junior lithium space, such as Altura project in Pilgangoora (not yet funded), or Sale de Vida Brine project from Galaxy (not yet funded), or Bacanora clay project in Mexico (DFS not yet finished), or even Orocobre expansion plans (preliminary technical studies phase just started)...etc.
The rationale behind the exclusion, is that the development/construction phases of mining projects is infamously lengthy and it is unlikely that a project which didn't yet finish its own feasibility study or didn't yet receive any financing in Q1 2017 would be able to start producing and achieve nameplate production by 2020. This of course doesn't mean that other projects not present in the table won't succeed in securing financing and becoming producers by 2020, it is just that if this happens, most likely and realistically, the new lithium supply from most of these late comers won't be substantial by 2020. In any case, the table could be updated if a new prospective lithium project jumps on the surface.
The projects that met the criteria (seven projects) are listed in the following table1, whereby their announced targeted nameplate production is specified, along with the targeted first year of production. The second step in this estimation/prediction study is to determine the probability of each project achieving nameplate production by 2020. To keep it simple two levels of probabilities were selected : either the project has a high level of probability to achieve nameplate by 2020, or a low level of probability.
A project is considered as having a high probability achieving nameplate production by 2020 if it is already fully funded and targeted first year of production/commissioning to occur at latest by 2018. On the other hand, a project is considered as having a low probability achieving nameplate production by 2020 if either it is only partially funded, or the first year of production/commissioning is expected late in 2019-2020.
These criteria left us with only two projects showing a high probability of achieving their targeted nameplate production by 2020 : Mt Marion and Mt Cattlin hard rock lithium projects, which are both fully funded and coincidentally they already started production/commissioning.
The remaining six projects show a low probability of achieving their nameplate production targets, either because they are only partially funded and thus may suffer delays waiting to receive full financing before they could finish the construction phase and start commissioning (Pilbara project in Pilgangoora in Australia, and Nemaska project in Wabouchi in Canada), or they are fully funded but their targeted first year of production is rather late in 2019-2020, allowing them very little time to achieve nameplate by 2020 (Albemarle's brine expansion project in Salar de Atacama of Chile and hard rock expansion project in GreenBushes of Australia, and Lithium Americas/SQM brine project in Cauchari-Olaroz of Argentina).
It should be noted that Albemarle plans of expansion in Salar de Atacama are extremely aggressive and ambitious, going from 24.000tpa in 2016 to 44.000tpa in 2017, to 80.000tpa in 2020-2020 (maximum lithium extraction rate allowed by their new signed agreement with chilean authorities). Eventhough the first year of expansion is 2017, it is a multi-phase expansion effort involving the building of a new LaNegra3 lithium carbonate processing plant in Chile to be commissioned in 2020 (see note3 of the table) and that is why we considered the probability of the expansion to achieve nameplate by 2020 as rather low.
Now that the probability of achieving nameplate production by 2020 has been identified as high/low for each of the assessed seven projects, we may proceed to the final step which consists in the estimation of the amounts of lithium production to be expected by 2020 for each project based on three different scenarios (optimistic, conservative, and pessimistic).
In all three scenarios, even the pessimistic one, I considered that the projects showing a high probability of achieving nameplate by 2020 (two projects) will be able to achieve their target rates. However, for the remaining six projects with a low level of probability of achieving nameplate by 2020, I assumed in the optimistic scenario that they could achieve 75% of their nameplate production rate by 2020. For the conservative scenario, a 50% of nameplate is assumed and finally for the pessimistic scenario, it is assumed that only 25% of nameplate could be achieved by 2020.
This provides us with three total numbers of expected new lithium supply (LCE) by 2020 :
How these expected new lithium supply quantities compare with new lithium demand predicted by analysts through 2020 ? Would the lithium market by 2020 witness an over-supply or rather an under-supply situation ? Stay tuned for part2. Notes and sources of data :
Albemarle received final approval from chilean authorities to produce over 80,000 MT annually of technical and battery grade lithium salts over the next 27 years at its expanding battery grade manufacturing facilities in La Negra, Antofagasta, See News release 4 january 2017 : http://investors.albemarle.com/phoenix.zhtml?c=117031&p=irol-newsArticle&ID=2233736
See also Albemarle (ALB) Q4 2016 Results - Earnings Call Transcript, 28 February 2017, https://www.msn.com/en-us/money/companies/albemarle-alb-q4-2016-results-earnings-call-transcript/ar-AAnEivU "First, we finalized two agreements in Chile, which position us to expand our lithium carbonate production capacity there from the roughly 24,000 metric tons produced in 2016 to over 80,000 tons by 2020"............."You should expect capital spending to increase significantly in 2017 compared to 2016. We will ramp up spending from La Negra 3, our third lithium carbonate plant in Chile planned for early 2020 startup, and begin the 20,000 to 25,000 metric ton expansion of the Jiangxi Jiangli conversion assets in China. As a result, you can expect capital to increase to $350 million to $400 million in 2017, with Lithium growth capital driving most of the increase. "
