Supply Part I

When conducting research for the White House, it was always a matter of starting out with a source which we all felt was extremely reliable.  After all, our message and production would be examined and re-examined countless times by the American public.  Similarly, when discussing Lithium Supply, we want to first start by looking at a governmental source to see what their current viewpoint is on how much is currently available in the marketplace.  

Current Supply

According to the USGS, the supply for Lithium was 187,902 Tonnes in 2016. Albemarle (the #1 producer in the lithium space) reported in March that 2016 that supply was 209,000 Tonnes.  Orocobre (OROCF) a Junior lithium provider (whom we will go more in depth on later on), estimated that supply was at 185,000 Tonnes.  In short, average supply at the beginning of 2017 was approximately around 200,000 Tonnes.

Future Supply

We’ve compiled and read through countless reports to gauge where experts expect future supply will be.  We’ve detailed these below in our first chart which shows supply increasing to 229K Tonnes LCE this year, 269,000 in 2018, 295,600 in 2019, 336,333 in 2020 and 561,667 in 2025.  Additionally, we’ve included a helpful chart provided by Pilbara minerals which also shows a snapshot of where Supply might be headed.  You’ll notice our compilation and Pilbara’s are very similar.  

2017 2018 2019 2020 2025
Deutsche Bank 250,000 285,000 310,000 365,000 550,000
UBS 225,000 300,000 350,000 400,000 685,000
Citi 235,000 265,000 293,000 318,000
Goldman Sachs 225,000 250,000 275,000 305,000
Cormark 210,000 245,000 250,000 255,000
Canaccord 237,000 290,000 347,000 403,000 711,000
Morningstar 375,000 450,000
Average: 230,333 272,500 304,167 345,857 599,000

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Geographical Locations

Where is the supply coming from?  Which countries around the world are producing the most?  We took data provided by the United States Geological Survey and have crafted the chart seen below.  As seen and further highlighted in bold, Argentina, Australia and Chile make up a dominant force in the production of lithium.  All told, they represent a total of 96% of worldwide production.  Countries such as the United States, Bolivia (which has one of the largest estimated Lithium resources) and others are just starting to enter the marketplace.  Additionally, it should be noted that Argentina’s recently elected government is paving the way to help bring further production to the Country!  They are obviously seeing that Lithium is a very important commodity….

16.15% Argentina
40.51% Australia
0.57% Brazil
33.99% Chile
5.67% China
0.57% Portugal
2.55% Zimbambwe
100.00% Worldwide

 

Other points to keep in mind when it comes to geographical location is that there are certain areas within the Lithium world that are particularly known.  One of them is the Lithium triangle, an area that stretches between Argentina, Chile and Bolivia.  A picture of the area that also details which companies are mining in the space can be viewed below.  If we had to choose another location of importance, it would probably be Greenbushes, Western Australia, which is also a source for Albemarle (as well as Tianqi through a Joint Venture with Albemarle known as Talison).  The Lithium triangle was recently reported on in depth via our twitter feed from an economist article found here.  

The Lithium Triangle

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The Lithium Cartel

It’s important to also understand where supply is coming from.  Currently, supply is provided primarily by 4 companies which is what has historically made the space so interesting.  When supply is controlled by only a few companies, this is something that strategists and investors alike get excited about.  The fewer companies that are in the space, the more they can potentially control supply and thus manage prices and profit margins.  This oligopoly is made up of Albemarle, Sociedad Química y Minera de Chile (SQM), FMC corporation (FMC) and Tianqi (publicly listed in China).  According to our data, which we will present further in short time, these companies control approximately 80% of the market share for Lithium.  This is also well summarized by the Goldman Sachs chart below.  Furthermore, this is without consideration of the different JVs and Investments that these largest companies have participated in within the Junior Mining Space.  There are many joint ventures currently within the Lithium space – of which we will also be delving further into at a later date!  

supply 3.png

The Lithium Cartel: Increasing Production

The big four, as we may call them from time to time, are quickly trying to increase their production as much as possible to meet demand (which we discussed in our previous post on Demand).  ALB the #1 Lithium producer, has roughly around 80,000 Tonnes currently in production and are looking to increase this dramatically over the next several years.  This can be seen by one of their latest presentations as follows:  

supply 4

SQM, the second largest provider of Lithium, recently announced in May during their earnings call that they will expand their production by 16,000 Tonnes at their current site.  In addition to this expansion, they also have a 50/50 JV with Lithium America’s.  Lithium America’s is expected to produce 50,000 Tonnes of additional Lithium in the marketplace.  It should be noted, Ganfeng is an investor in this same project and is an investor in many of the new Lithium supply projects which are under way (we will be covering their investments in a later blog post).  

The latest most significant story to the supply outlook is the abundance of Junior Miners that are looking to come online.  This ranges from Orocobre, one of the most well known Juniors, to Galaxy Resources, Neometals, Nemaska, Lithium America’s and others.  Orocobre, one of the latest to commence production has brought to market somewhere between 10,000 – 12,000 tonnes of new supply.  ALB does a great job showing the various new entrants in their March presentation to investors (shown below).  The sheer number of potential new miners is no surprise, given how high Lithium prices and profit margins have been in the marketplace.    

supply II

Coming Up Next….Supply Analysis II

Much more will be discussed in our second upcoming post on supply regarding the Junior Miners.  We are going to go in depth and analyze the potential supply coming online from the Junior Miners that are listed in the ALB chart above!  Only by fully understanding who the players are and how much supply will come forward, will we be fully able to gauge where to best place our money!  

Stay tuned!!

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