The Western Australian hard-rock lithium brigade got beaten up something shocking last year as contracted prices for 6% spodumene weakened from more than $US1,000t in the September quarter to $USUS930/t in the December quarter.
Prices - based on quarterly pricing for the Mt Marion project kindly posted by Mineral Resources (MIN) – have fallen further for the current March quarter to $US791/t, which when stacked up against forecast production costs and a friendly US70c exchange rate, is still not all that bad.
But the real twist here is that the WA lithium stocks without particular issues – and there a couple out there – have been on a bit of a tear since mid-December. Lead examples are Pilbara Minerals (PLS) and Kidman (KDR) which are up by 27% and 30% respectively in the period.
While the share price bounce has been off beaten-down levels, it does go to the idea that there is good reason to think that the big thematic that drove lithium and stock prices wild between early 2016 and late 2017 is startling to bubble again.
The thematic was that the world would struggle to supply the lithium battery needs (which apart from lithium, takes in graphite, cobalt, nickel, manganese, tin and so on) of the revolution in electric vehicles and the storage of renewable energy.
If there was a particular reason behind the rally in WA lithium stocks kicking off in mid-December, it had to be the deal announced at the time between Mineral Resources and global lithium industry leader, US group Albemarle Corp (US:ALB), on the Wodgina project.
Mineral Resources is up by 12% (with the help of iron ore price strength) and Albemarle has gained 13% since the formation of the 50:50 joint venture (with Albemarle having 100% of the marketing rights) was announced.
More to the point here though is that by buying a 50% stake in Wodgina and hitching itself to the development of a 100,000tpa lithium hydroxide plant at the WA site, industry leader Albemarle has effectively slapped down $US2 billion to do nothing more than maintain its long-run market share in lithium, such is the strength in forecast demand growth and the required supply response.
A recent demand forecast by Albemarle highlights the scale of the challenge. From actual demand of about 270,000t of lithium in 2018, Albemarle now forecasts 21% compound growth to about 1mt in 2025 and possibly as high as 1.2mt.
That is up from last year’s 800,000t forecast and reflects super-charged demand from the battery makers supplying the electric vehicle market. Even with the big integrated producers like Albemarle cranking things up, the 2025 demand from an accelerating green world is one mighty big challenge. Impossible, some would say.
