Aussie explorers say Macquarie has it wrong on lithium oversupply tsunami
Junior explorers have rejected investment bank Macquarie’s claim that the lithium market is “sleepwalking into a tsunami of oversupply”.
Macquarie’s wealth management division made the comments in a note titled “Lithium: Welcome to Thunderdome” sent to investors last week.
The note was in reference to the poor performance of lithium stocks this year.
Although 60 per cent of the 100-or-so ASX companies with lithium exposure have made gains over the past 12 months, three-quarters have gone backwards over the past six months.
>> Scroll down for a list of ASX stocks with lithium exposure, courtesy of leading ASX data provider MakCorp
The reversal was largely due to expectations of a lot of product hitting the market.
But that hasn’t happened, Argosy Minerals (ASX:AGY) managing director Jerko Zuvela told delegates at the Diggers & Dealers Mining Forum in Kalgoorlie on Monday.
“Not only hasn’t it happened so far, there are ongoing issues with chemical conversion due to environmental issues, construction issues and so forth,” he said.
Macquarie sees mine supply growing at an annual rate of 37 per cent until 2022, and brine production rising around 12 per cent each year over the same period.
But it expects demand to grow at only 14 per cent each year (27 per cent in the battery sector alone).
“I think the market is quite easily manipulated,” Mr Zuvela told Stockhead on the first day of the conference.
“We’ve seen brokers in the past like Morgan Stanley say the same sort of bad news. But really what we’re seeing … is the lithium chemicals end-use product is in short supply. There’s not enough of it and you can’t produce it fast enough.”
Argosy’s share price rocketed nearly 70 per cent to an intra-day high of 30.5c on Monday after it revealed it can produce battery-grade lithium carbonate.
The company says it can get 99.6 per cent pure lithium carbonate from its 500-tonne-a-year stage one plant at its Rincon lithium project in Argentina.
Lithium carbonate is used to make cathode material for lithium-ion batteries.
Supply is unable to keep up with the rapid increase in demand because it’s not that easy to bring spodumene mines online and existing brine producers aren’t ramping up production, according to Mr Zuvela.
“So really what we’re seeing is the spot price market in China coming back a bit and that’s putting the fear into brokers that they think the markets are oversupplied,” he explained.
“But it’s a totally different market – the Chinese spot market versus the international market. What we’ve seen is the international price [free on board] South America rise steadily over the last six or nine months.”
‘Constipated’ supply chain
At the same time, the supply chain is “constipated”, Lithium Australia (ASX:LIT) boss Adrian Griffin told Stockhead.
“You’ve got to look at the tsunami of demand and see how it balances,” he said.
“Quite frankly the demand curve is rising so rapidly that it’s very difficult to see supply catch up.”
Lithium Australia is set to be the first Australian company to do everything from mine lithium to make batteries all under one roof.
The company has just finished the construction of a new pilot plant in Sydney and begun commissioning the plant using waste material taken from mines in the Kalgoorlie region.
It will turn that material into cathode powder and make batteries.
The cathode is used to conduct electricity flows out of a battery or device.
The forecast is that lithium demand will more than triple between now and 2025, Global Geoscience (ASX:GSC) managing director Bernard Rowe told Stockhead.
“It does look like there could be some short-term oversupply,” he said.
“We’re about a 250,000-tonne market now, but by the time you get to 2025 it’s easily 700,000 or 800,000 tonnes. Once we get to needing more than a million tonnes of lithium carbonate a year I think a lot of those oversupply arguments go away.”
Global Geoscience has one of the largest lithium and boron resources in North America.
A mining study found recently that the Rhyolite Ridge project in Nevada could be a 3 million to 4 million tonne per annum operation with an estimated life of 30 years based on the current resource.
Here’s a list of ASX stocks with exposure to lithium courtesy of leading ASX data provider MakCorp:
Stockhead is proud to use Mak Corp as a provider of great value, accurate and reliable data on ASX-listed mining stocks. For more information head to Mak Corp’s website.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.