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Jonathan Lee: Lithium Powers the Green Revolution
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Source: Brian Sylvester of The Energy Report 04/19/2011
http://www.theenergyreport.com/pub/na/9289
 Demand for lithium, a super-light, yet super-charged metal used in batteries, has been slowly rebounding from a dip in 2009. Main players in the space are planning to expand and new market entrants are on the horizon. But which are poised to benefit if there is a glut in supply? In this exclusive interview with The Energy Report, Byron Capital Markets Battery Materials and Technology Analyst Jonathan Lee reveals his forecast for prices, supply and demand.
The Energy Report: Jonathan, please tell us about lithium and its core uses.
Jonathan Lee: Lithium metal is used mainly in the glass and ceramics industry and in lithium-ion batteries, which, collectively, comprise about one-half of all lithium used. The other remaining uses are anything from greases, casting and aluminum production to pharmaceuticals. It's a very versatile metal.
TER: What is the investment thesis for lithium?
JL: Lithium is an important component of the batteries that power electric vehicles (EVs). We believe in the electrification of vehicles over time. We focus on the metals that play a role in the electrification of our transportation mechanisms and associated infrastructure. Obviously, lithium came up as one of the key metals that will be used in this revolution.
TER: The green revolution?
JL: The green revolution is a nice way of saying it. Demand for lithium will continue to grow at a much higher rate than gross domestic product (GDP) over the next 10 years.
TER: What has lithium's supply/demand curve looked like during the past few years?
JL: Lithium experienced a dip in 2009, but production has been around 120,000 metric tons (120 Kt.) lithium-carbonate equivalent since 2008. That's equal to about 23 Kt. lithium metal. In 2009, lithium demand, along with many other materials, dropped pretty severely to under 100 Kt. Estimates for last year, 2010, range from less than 100 Kt. to about 120 Kt. It's hard to get very exact numbers because it's a fairly opaque market.
TER: Do you think the lithium market will become more transparent and perhaps trade on the LME, for example?
JL: Lithium is not that big of an industry, but you saw cobalt and molybdenum start to trade on the LME in early 2010. If there is some success in trading those materials, maybe there are some benefits in trading lithium. The problem is that lithium is traded in different forms. That would make it more difficult to trade on any exchange because it is sold as spodumene, which is lithium oxide concentrate, lithium chloride, lithium hydroxide or lithium carbonate. It is really customer specific; so, it probably won't be trading on an exchange any time soon.
TER: What has the price of lithium been like in the recent past?
JL: Each form of lithium brings a different price. In the second half of 2008, a big run-up in the price of lithium carbonate equivalent (LCE) resulted in highs of $6,000/ton. In 2009, SQM's figures show lithium was selling at around $5,300/ton and its latest financials indicate that it was selling at around $4,700/ton last year.
TER: Where do you expect the price to be by year-end?
JL: We think it's going to finish at around $5,000/ton lithium carbonate. With so few players in the market and not many low-cost juniors expecting to come into production this year, I don't foresee a price move upward or downward in the next year.
TER: Do you believe there's long-term upside in the price of lithium?
JL: I'm not sure if there's a real upward price trend for lithium in the long term; thus, any high-cost supplier that comes to the market is really going to have a hard time competing. I don't believe there will be a dramatic increase in the lithium price in the near, medium or long term.
TER: So, it's all about the margins on these projects? A company must bring lithium to market at a low cost to have a good margin?
JL: I believe that the low-cost suppliers will be able to thrive in this marketplace. Obviously, the product has to meet customers' end specifications. The problem is that often juniors don't know whether or not they meet customers' specs. Only some have offtake options for steady customers but, in forming options, companies have access to customer specifications with which they can develop around. It's hard to gain a market share without being a low-cost producer or having an offtake agreement.
TER: Where is lithium demand going relative to new technologies like EVs and batteries for smart phones, laptops and tablets?
JL: We're definitely very bullish on the demand for lithium. Being that lithium is in the top left of the periodic table, it's an energy-dense, but light, material for battery applications. Demand began to pick up in the latter half of 2010 and I believe it will increase significantly from 2014–2016 on, due to the implementation of EVs.
TER: One of the issues with some specialty metals like lithium is that cheaper substitutes are often found when prices for specialty metals get too high. Is this a threat in the lithium space, or are its unique properties of lightness and high-energy density virtually irreplaceable?
JL: I don't think there is any danger of lithium being replaced by another metal. If it was to be replaced, it would be swapped out for a different technology. Lithium is the choice material for rechargeable batteries. President Obama has come out and said that, by 2015, all federal vehicles purchased will be alternative-fuel vehicles. That's a steppingstone to where lithium demand can go. I know China's following suit also, in terms of electrification of it vehicles. We firmly believe that because of road electrification, lithium will be used more and more.
TER: Thanks, Jonathan, this has been very informative.
Jonathan Lee is a battery materials and technologies analyst with Byron Capital Markets in Toronto. As a member of Byron's research department, Lee applies his beliefs, skills and investment acumen to evaluate and select equity securities, and then recommend investment ideas to the firm's proprietary traders and institutional clients. His primary focus is on the battery materials sector, which includes lithium, vanadium and cobalt. Prior to joining Byron in 2010, Lee had more than seven years of professional industry experience in the manufacturing and engineering sectors. He previously worked in an engineering capacity preparing feasibility studies for economic assessments and engineering designs for construction projects. Lee has an MBA from the Leonard N. Stern School of Business at New York University, BSc in chemical engineering from Tufts University and is a CFA Level III candidate.
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