Supply Part II

When will supply from Junior Miners Come To Market?

To best analyze what’s currently going on in the marketplace, we think it is important to look at the supply outlook in three timelines:  

  • The short term: June 2017 to Dec 31 2017
  • The intermediate term: Jan 1 2018 to Dec 31 2018
  • The longer term: 2019 and beyond

Note: The above chart is sourced from Albemarle’s recent investor day presentation. Some of the mining projects have progressed since then, which we have taken into account for the below analysis.


Name Producing as of: Q4 2017 Estimates (Tonnes) Q4 2018 Estimates


Orocobre 2017 12,000 18,000
Galaxy Resources 2017 622*2=1244   7,500
Neometals/Mineral Resources 2017 5,440*2=10,880 20,000
Pilbara Q2 2018 X 12,000
Altura 2018 X 6,500
Enrigi Group 2018 X **
ALB Years ago… 10,000 14,500
SQM Years ago… X 14,500
FMC Years ago… X 4,000
Total New Supply 35,244 97,000

(showing an additional 62K Tonnes over 2017)

**Too hard to estimate since they are a private company.  

The Short Term: The 2017 Marketplace

First, let’s recall that supply at the end of 2016 was around 200,000 Tonnes.  Moving into 2017, we have three producers that have come online in the past year or so: Orocobre, Mineral Resources/Ganfeng/Neometals and Galaxy Resources.  In the first six months of 2017, Orocobre produced around 6,000T, Neometals/Mineral Resources/Ganfeng 6,000T and Galaxy Resources 600T.  If each were to continue producing at the same rate for the remainder of the year, total production from these newcomers would be at 25,200T for 2017.  

It should be noted that this estimate assumes no difficult weather transpires. Additionally, many of the newest producers (Neometals & Galaxy Resources) are producing spodumene which is generally converted through China.  This elongated process of exporting prior to conversion to lithium carbonate (which could become a bottleneck) could also further hamper supply from these sources (we’ve seen fears of this reported).  

Total supply for 2017 including the Juniors additional supply (25,200) and ALB additional supply (10,000 Tonnes) as reported should bring supply to roughly 235,000 Tonnes.  We showed in a previous post that the average forecast for Demand in 2017 is approximately 235,000T.  Hence, this model shows that Demand is either right in line or could be slightly outpacing supply for 2017 (assuming no further demand forecast revisions by miners or analysts).  Regardless of the precise numbers, we are confident that there is no overabundance of supply which should mean prices and profit margins should remain strong for the remainder of 2017.  

The 2018 Marketplace

According to ALB’s initial snapshot of the Junior market (shown at the top of the page), there were 6 projects slated to come online in 2018:Pilbara, Altura, Nemaska, Enrigi group, Eramet and Bacanora. Projections aside, we need to consider how many will actually begin producing by Q4 of 2018 and how many will meet production targets in their first year of operations.  

Recall that Orocobre, the first greenfield (from scratch) mining operation in two decades told the market they would produce roughly around 17,500 Tonnes in year one but came short of that mark by 30-40%.  Galaxy Resources, which produced 622 Tonnes to date is not even at 1% of its total nameplate (installed) capacity.  Like Orocobre and Galaxy Resources, what if each of these new producers all come online but come short by 30-40% or worse of their stated total output for year one?  What if 1-2 of these producers never come online and totally fail?  All of these points should be kept in mind as we start evaluating potential investments in the Lithium space.  

Starting with Enrigi group and Eramet, they are real question marks!  Eramet in their May 2017 presentation to shareholders don’t even have slides on their Lithium project.  That’s not a good sign.  Wouldn’t you want to be shouting on the rooftops to your shareholders about a profitable lithium process about to begin?  

Enrigi group started construction in Dec. 2016, which means that their lead-up process (which includes a lot of studies, permits, financing, etc) is totally complete and they should be ready to ship within 12 months by Q1 2018.  Yet, as rightfully noted by our USGS contact, Enrigi is a private group which makes it a “black hole” for evaluation purposes compared to the other Juniors that are public entities.  It’s really hard to predict what Enrigi will produce in 2018.  Should they come online in 2018, there’s very little chance they’ll be at full capacity until Q1 2019 at the earliest, if not much later.  

Nemaska are scheduled for production starting in Q1 of 2019.  As for Bacanora, they are slated to start construction in 2018 which means they will be ready to ship sometime in 2019 at the earliest. However, our USGS contact noted that much of their technological process is not fully proven and as such, we can assume that 2018 is a real stretch for any production at this given moment.

Pilbara has secured funding, and Altura is very close, which puts them on track for production on some level in 2018, assuming they don’t hit any delays.  Pilbara will start producing in Q2 of 2018 with a nameplate capacity of 52K Tonnes.  Using Orocobre/Galaxy/Neometals as recent examples, we could reasonably estimate that Pilbara produces 12,000 Tonnes in 2018.

Similarly, Altura has a nameplate capacity of 14K Tonnes but we will estimate production closer to 7K Tonnes in 2018.  Summarizing our 2018 Junior analysis, we have only Pilbara, Altura and Enrigi group possibly reaching any production.  But as we explained, we shouldn’t expect too much from any of them in 2018.

Additionally ALB, SQM and FMC will continue to add to production (see chart above).  When adding the outlined estimates together, we have approximately 60,000 Tonnes of additional production for 2018.  Depending on where exactly Demand will be, this could be an oversupply, tight market, or undersupply.  It’s very hard to tell, but based on the track record of recent new operations coming online- our money would be on supply not being able to fully keep up.  After all, ALB and SQM both recently updated their demand expectations.  It was only one month ago that SQM raised their demand estimate from 8-10% per year to 14% per year a significant increase.  We also saw ALB raise their demand growth forecast from 20,000T per year to 35,000T per year.  Even if supply keeps up with demand, it shouldn’t dramatically change pricing since an oversupply of great abundance shouldn’t be a fear at this stage.  


Final Thoughts on 2017-2018

On a final note, we believe it is important to think about the market from an expectations perspective and to find names where you believe the market is getting it wrong (either positively or negatively).  As an example, Albemarle has consistently left room on the upside of their forecasts for lithium, which has allowed the stock to continually move upward with each “surprise” beat on the lithium projections.  Conversely, when Galaxy Resources announced their first shipment of Lithium Concentrates on June 14th, the market saw the rapid downward correction for a stock that doesn’t deliver on expectations.  Similarly, many will remember quite well when Orocobre failed to meet expectations and how the stock reacted.  


Finally, stay tuned!  We have a lot of exciting content coming your way!  Content which will be coming shortly include:  

  • Supply III post
  • Interview with CEO of a Junior Miner
  • Lithium Cartel Analysis
  • ALB Analysis
  • The Junior Miner Lithium Marketplace
  • Much More!  


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