The world’s biggest lithium miner has suffered a setback that could benefit ASX stocks
Lithium prices could be headed up after Chile refused to allow the world’s biggest producer of the sought-after metal to increase sales from a giant deposit in the South American nation.
The decision could be a major set-back for US-based Albemarle — and an opportunity for ASX-listed lithium producers.
Albemarle and fellow Chilean lithium major SQM had been expanding their operations in the Salar de Atacama region of Chile, which is regarded as the world’s richest deposit of the metal.
But Chile’s nuclear regulator rejected Albemarle’s request to increase the amount of lithium it sells from the environmentally sensitive Salar salt flats.
The planned expansions have been one of the factors in analysts’ predictions that a flood of lithium supply was about to the enter the market.
Australia’s newest lithium producer Altura Mining (ASX:AJM) — which has just sent its first shipload of lithium to China — could be among ASX stocks to benefit.
“It was on September 15, when Albemarle Corp asked Chile to increase the US miner’s lithium production limit, amid high global prices,” Niv Dagan, executive director at Peak Asset Management, said.
“The company asked a State development agency to raise its lithium production quota to 125,000 tonnes annually from the current 80,000-tonne per year limit.
“However, Chile has now come out refusing to allow Albemarle to do so and this could have a positive bearing on lithium prices going forward.”
The news did not immediately impact ASX small caps, however.
Players like Lithium Power International (ASX:LPI), AVZ Minerals (ASX:AVZ), Altura Mining, Lepidico (ASX:LPD) and Argosy Minerals (ASX:AGY) all closed lower on Tuesday.
“We feel that the recent rise in the US 10-year bond rates combined with a rising US dollar, divergence between equities and commodity prices and a tough small-cap environment isn’t helping short-term momentum,” Mr Dagan said.
Supply remains tight
While Macquarie and Morgan Stanley think there will be an oversupply of lithium as early as next year, Bloomberg New Energy Finance (BNEF) still sees huge opportunities for lithium miners to increase supply.
The world’s lithium battery-making capacity will more than triple from 175 gigawatt hours to 630GwH by 2022, analyst Logan Goldie-Scot said at an industry event this week.
Gigawatts are a measure of energy output — one gigawatt hour is the equivalent of generating 1 billion watts for one hour.
“That’s not a forecast from us,” Mr Goldie-Scot said. “That’s purely based on announcements from different battery manufacturers on the size of their new plants, and when they expect to commission them,” he said.
The extra capacity is driven largely by the expected growth in electric vehicle sales.
But the lithium market remains relatively tight, according to BNEF.
“There was a lot of talk of lithium scarcity last year – now that’s changed, its more just tightness in the market,” Mr Goldie-Scot said.
“This supply view is still very vulnerable, because production rarely, if ever, comes online as planned.
“People are now far more comfortable with the demand pull and ability of battery metals producers – lithium and cobalt especially – to keep up with that demand.
“One thing is really clear — if you look at where battery demand is expected to go over the next decade and beyond, there will be a significant ramp up in [manufacturing].”