Is This A Gamechanger For The Lithium Industry?

2018 was a terrible year for commodities, but few sectors fared as badly as lithium.

The crucial battery metal, also known as “White petroleum”, struggled through a 50 percent price correction as supply soared and demand fears spread like wildfire.

But t isn’t time to give up on lithium stocks just yet.

The rising stars of the hard-rock lithium space are transforming the industry with their remarkable ability to extract lithium at a lower cost and faster pace than the lithium majors can from their brine deposits. In short, there’s a new caliber of producer in town and - with lithium demand set to soar once again – their timing could not be better.

The three stand out companies in the hard-rock mining space at the moment are Albemarle (NYSE: ALB), Chinese Tianqi Lithium (SZSE:002466) and Power Metals (TSXV: PWM; OTC: PWRMF). And each of these companies are able to bring lithium to market faster and cleaner than their brine-based competitors.

Before examining the hard rock lithium space though, we need to take a closer look at the market itself. Overall, the supply-demand balance is actually much tighter than prices suggest. After all, the soaring demand from tech and energy sectors that triggered lithium’s meteoric rise in 2018 didn’t vanish overnight.

The lithium boom began in earnest in 2014, with prices rising from less than $6k a ton to more than $16k by 2018. With demand soaring, billions were invested in new mines, with salt brine deposits in Chile and China getting most of the attention.

 

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But after a few banner years, Wall Street started looking at Lithium with more suspicion. In February 2018 Morgan Stanley issued a crushing report: the firm determined that Chilean brine would add 200kt to the market by 2025, effectively doubling supply.

That sent lithium prices plummeting. In China, lithium carbonate prices fell by 50.31%, crushed by reports of the over-supply.

 

(Click on image to enlarge)

But by year’s end, some of those fears had begun to dissipate. Huge projects that were expected to flood the market began experiencing delays.

You see, salt brine lithium production, which accounts for most of the market, takes a while to get going: salt water is pumped to the surface where it evaporates to form potassium deposits containing lithium.

Take Orocobre in Brisbane, Australia, and its Salar de Olaroz facility in Argentina, which was meant to supply 42.5k tons. Delays, legal troubles and mounting expenses has brought the project basically to a halt.

Mining lithium through salt brine evaporation can generate big earnings, but only for firms with the capital to see them through: for that reason, the lithium sector is dominated by larger companies such as Albemarle (NYSE: ALB), FMC (NYSE: FMC) and SQM (NYSE: SQM)

These major firms saw their prices tank last year, as the lithium bubble burst in the wake of the Morgan Stanley report and fears of future over-supply.

But that doesn’t mean the lithium party is over. In fact, it may have only just started.

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Carl Schwartz 1 month ago Member's comment

I had read a good article here, I think by either Gary Anderson or John Petersen about #lithium and how there simply isn't enough of it to go around. We need to find alternatives.

Gary Anderson 1 month ago Contributor's comment

If the author is right about rising demand, the price of lithium will skyrocket. I don't see much growth in the USA though. People may buy them with incentives. Many switch back after trying them out.