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fundamentals support strong lithium pricing in 2018

by:HGB     2020-06-15
2017 will be a year of transformation in the automotive industry, as the industry is committed to achieving the electrified of specific models and achieving long-term high volume production targets.
In order to respond directly to this macroeconomic trend, the battery manufacturing industry is committed to increasing global production capacity, and since then, in the downstream of the entire lithium exploration and production market, the industry has carried out a series of investment activities.
The investment paper for this connection is very simple-
The lithium production company will benefit from an increase in the price of its material sales.
In addition, as the total value of assets increases, lithium exploration companies with proven resources will also benefit.
Like any market that is rising, it is profitable to have assets in this market, which is called momentum investment.
The easiest way to own assets in the lithium market is to acquire and hold shares in lithium exploration and production companies.
Although it is difficult to identify pure lithium production companies, there are several options that will directly benefit from the rising wave of lithium.
All signs have led investors to believe that lithium carbonate pricing will remain strong and rise in 2018 (
See: lithium mine-
Understand the emerging supply pattern).
These days, in the process of turning to electric vehicles, it doesn\'t take much digging to find dozens of headlines in the transportation industry.
Many forms of transport, including passenger vehicles, municipal bus fleets, heavy vehicles, scooters and mopeds, are shifting to electric power.
Renault-Jaguar, Volkswagen Group
Both Nissan and Daimler have announced plans to build electric vehicles, some of which will build or expand their battery manufacturing capabilities.
Volkswagen Group (
LG Chem has announced that it will invest $1 to build 3 million electric vehicles a year by 2025.
In a new Polish battery manufacturing plant, the plant will produce 6 billion electric vehicle batteries per year, with a production capacity of 100,000.
This simply shows that the battery manufacturing industry needs to significantly increase global production capacity in the next few years.
Ramp according to available delivery date-
The electric vehicle market will be in the next 24-
36 months has plunged the battery manufacturing industry into a whirlwind.
Panasonic and other first-class battery manufacturers (
OTCPK: BYDDF), and LG Chem (
They have announced their intention to stay ahead of the next demand phase.
The battery manufacturer either delivers the battery or module to the customer and then packs it or integrates it into the battery pack or the final system.
An undiscussed topic is the impact of automotive battery demand on the fixed energy storage market.
The fixed storage market includes three main application areas: residential, commercial and public utilities.
In the residential market in North America, it is clear that there is a shortage of bank-guaranteed energy storage systems, which is the result of the distribution of battery production to the automotive industry due to increased volume and profit.
Battery manufacturers are deciding to enter the high-end market.
For the fixed energy storage market, the volume margin opportunity may prove challenging unless
Automotive applications (
See: residential storage market will grow rapidly in North America).
The chart above shows the dramatic slope
The fixed energy storage market rose between 2017 and 2022.
It is expected that the installation in North America will reach 591MWh in 2017, equivalent to about 8,000 electric vehicles with a storage capacity of 60kWh per vehicle.
At 2022, more than 100,000 electric vehicles will be used each year.
Although the automotive industry will drive the development of the lithium supply chain, the fixed energy storage market should not be ignored.
The above figures do not include the booming energy storage market in Asia and Europe, which will increase the huge demand for the above figures.
Demand in the fixed storage market will help to keep the supply of lithium carbonate tight in 2018 and beyond.
This fast-growing segment of the market should not be discounted from the demand side of the equation.
It will take 7 to 10 years for a lithium brine project to achieve full production. Orocobre (
Toyota Trading Co. , Ltd (
Olaroz\'s joint venture is the latest lithium brine project that has been commercially produced for 20 years (See: Orocobre-
Road to lithium production in Argentina).
Therefore, in determining the length of time the lithium brine project was commercialized, it is fair to use the Olaroz project as the benchmark.
As early as 2008, orocoset began to acquire a lithium basket land package in Argentina with the aim of exploring and eventually developing a lithium brine facility.
In January 2010, Orocobre began a joint feasibility study on lithium resource development in the Olaroz project.
In December 2012, the province issued a mining rights and development mandate allowing construction to begin in the second half of the year.
By December 2014, the ribbon cutting ceremony was held, marking the beginning of mass production.
At the end of fiscal 2017, the company stressed that since the materials delivered by Olaroz were about 11,000 tons of LCE in the capacity of 17,000 tons of LCE nameplate, the company was still speeding up the progress of the project.
Both Orocobre and the industry would like to learn about the development of lithium brine facilities, which helps to shorten the time to market for new projects.
However, investors should use 7-as a benchmark-
10-year development cycle of lithium brine facility.
The nearby lithium America brine project is now fully put into construction and is expected to produce the initial lithium carbonate in 2017.
Most of the primary exploration companies that have recently entered the lithium market are purely speculative investments, with little material support for any valuation.
Of course, the global market will need new hard rock and salt water projects to develop, but the new capacity will come from the incremental growth of existing facilities shown above.
It is also important that almost all new lithium capacity miss the deadline and exploration and producers are expected to continue to miss the target.
It should be noted that the project development cycle of the lithium project is very long and almost always lags behind schedule.
If only a few scheduled projects fall in just 12 months, the entire supply chain will feel the impact on global carbon carbonate pricing.
More importantly, any delay in the increase in lithium production
Up may delay the expansion of battery manufacturing facilities.
It makes sense that the battery manufacturer either signs an agreement with its material supply partner or moves directly downstream to lock in the supply agreement with the lithium producer.
Another important trend is that lithium exploration companies are entering
Enter into an agreement with a company (such as a battery material company) that will resell the product or integrate the material into its own process.
A good example of this is lithium America.
Reached an agreement with China Battery Group Ganfeng Lithium.
Lithium America has signed the agreement as it ensures buyers of the maximum output from its lithium salt water plant and shows investors the demand for its lithium products.
For Ganfeng Lithium, this enables them to reach a supply agreement with a customer base such as LG Chem or Panasonic.
For the industry, this simply means that the lithium American market is out of the market.
Although the supply is increasing, these
In terms of the agreement, the number of lithium carbonate that is widely used is limited, especially for small battery materials companies that may further increase the price of lithium products in areas such as China. Off-
It is great for lithium producers and big battery companies to accept the agreement, but it continues to limit the number of materials in circulation.
In addition, the lithium oligopolistic monopoly will continue to maintain strong control over supply and price due to the absence of widely supplied materials.
This is another important trend to ensure that pricing is strong in 2018.
The whole lithium battery industry is a relatively new industry with a history of less than 30 years.
In addition, the new application of lithium battery technology has just begun to open.
Yes, consumer devices benefit from the adaptation and cost reduction of lithium battery technology, but these devices consume a small amount of lithium per device.
Due to the increase in storage capacity, applications such as electric vehicles and fixed energy storage systems can get more lithium per battery module, while still being able to sell these devices in bulk.
These two emerging lithium battery markets will be fragile in the next few years, so if the sales demand for these products surges, there will be a serious shortage of supply in the lithium carbonate market.
The adaptation time of these technologies may also be much longer than the industry believes.
Overall, as all new industries may experience, there will be differences between supply and demand over the next few years, as the supply side will grow longer than expected
While demand is still too unpredictable.
Both factors will ensure that lithium prices remain strong in 2018.
The two companies that have direct access to the growing price of lithium carbonate are lithium America and Orocobre, based in Cauchari.
The Olaroz region of the Puna plateau has more than 80% of the world\'s lithium salt water reserves. Orocobre (
Over the past few years, the company has gradually increased production with a potential annual nameplate capacity of 17,000 tons of LCE.
In fy207, the company reported sales of 11,500 t lce, indicating that
Up is in progress, but the company should be able to run with a nameplate at the end of cy2018.
In addition, the company announced a lithium brine facility in its Olaroz (
See: Expansion of lithium battery production in the Orocobre collection).
Lithium America (
It has received more than $0. 19 billion in project financing from China\'s strategic partner Ganfeng Lithium industry.
The first phase of the project is expected to produce lithium by the end of 2019 with an annual nameplate capacity of 25,000 tons of LCE.
The scale of the second phase of the project will reach 50,000 tons.
Orocobre Olaroz engineering
Lithium salt pools with processing facilities have recently set up specialized ETFs such as the lithium Global X fund, providing investment opportunities for the entire supply chain, including electric vehicle manufacturers and multinational chemical companies
Therefore, these ETFs will not provide investors with the opportunity to rise directly to lithium carbonate, in fact, if the gap between supply and demand continues to expand, some holdings within the ETF may be affected.
The world\'s three largest lithium producers include Chilean mining companies. (NYSE: SQM)
Albemarle Corporation (NYSE: ALB)and FMC Corp. (NYSE: FMC).
All of these companies are diversified chemical companies that are not directly exposed to the potential growth of lithium carbonate pricing.
SQM is the world\'s largest producer of lithium, focusing on 40,000 tons of lithium carbonate equivalent (LCE)
One-year salt water facility in Salar de Atacama, Chile.
In 2017, with the growth of lithium battery demand, lithium\'s share price increased from 2014-
16 trading lows close to all
In the fall of 2017, the stock had a record high of over $55 per share.
At present, the company pays a moderate dividend to shareholders, with an annualized rate of return of more than 3%, a price-earnings ratio of 44, and inconsistent dividend payments.
The company paid $1 in 2014.
41/share, while the company paid $1 in 2013. 04/share.
Through their lithium sector, the FMC owns and operates a 17,000 ton/year lithium saline facility in Salar del Hombe, Argentina.
FMC is a very large and diversified multinational chemical company, facing the agricultural, consumer and industrial markets around the world through innovative solutions, applications and markets
Leading products.
The company operates in three business areas: FMC Agricultural Solutions, FMC Health and Nutrition, and FMC Lithium.
Currently, the company trades at a price-earnings ratio of 57 times while paying quarterly dividends.
Stocks with a 17/year yield of less than 1%.
As the majority of established lithium producers, FMC shares have risen from a low of around $35 in 2016 to around $90 in the fall of 2017.
Albemarle, a global leader in the specialty chemical business, completed all cash and stock transactions worth $6 in 2015 and acquired Lockwood Holdings. 2.
Through the acquisition, they now control the only North American company operating lithium mine in Yinfeng, Nevada, close to the Giga factory operated by Telsa motor.
The North American business produces 50,000 tons of LCE per year, while the Yinfeng factory produces 20,000 tons of LCE per year.
Albert marl provides shareholders with a dividend of 1% a year and trades at a price-earnings ratio of 47.
Since 2016, the company\'s stock has more than doubled from around $50 to $120 per share.
Disclosure: I/we are long LACDD, OROCF, avlib.
This article was written by myself and expressed my views.
I received no compensation (
In addition to Seeking Alpha).
I have no business relationship with any stock company mentioned in this article.
Editor\'s note: This article discusses one or more securities that are not traded on major US securitiesS. exchange.
Please note the risks associated with these stocks.
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