May 28, 2020 / 9:29 AM / a month ago

Deferred expansion plans fuel prospect of lithium price spike after 2022

LONDON (Reuters) - Shelved expansion plans for lithium projects due to collapsing demand for the material used to make electric vehicle batteries leaves the market facing a price spike after a couple of years when shortages start to emerge.

FILE PHOTO: Visitors tour the Rio Tinto borates mine in Boron, California, U.S., November 15, 2019. REUTERS/Patrick T. Fallon

Auto sales including electric vehicles have slumped this year due to economic damage from the coronavirus. But sales are expected to accelerate over coming years as auto makers plough on with plans to meet stringent emission regulations.

(GRAPHIC: EV sales penetration - here)

“When demand comes back, the supply side won’t be able to react quickly enough,” said Simon Moores, managing director at Benchmark Minerals Intelligence, adding that lithium prices would bounce after 2022.

Delays include Chile’s SQM (SQMA.SN) and Australia’s Wesfarmers (WES.AX) pushing back a final investment decision on the Mount Holland project in Western Australia to early 2021.

Tianqi Lithium Corp (002466.SZ), one of the world’s biggest producers, also postponed commissioning the first phase of its flagship plant in Kwinana.

Benchmark Mineral Intelligence (BMI) estimates supplies at 324,000 tonnes and demand at 315,000 tonnes this year.

BMI had forecast supply at 572,000 tonnes for 2023, but now expects that number at 543,000 tonnes and a shortfall of 8,000 tonnes. It expects the deficit in later years to balloon.

“It could take the best part of a decade to get a new mine to integrated chemical plant fully operational,” Moores said.

(GRAPHIC: Lithium prices - here)

Lithium prices have fallen about 40% over the past 12 months due to weak demand. Prices for lithium hydroxide, typically used to improve performance of high nickel content batteries, were about $8,375 a tonne in April from about $13,300 a tonne in May 2019.

Robert Baylis, managing director at consultants Roskill, expects supply to tighten in the short term due to stronger “post-COVID-19” demand and a possible structural deficit emerging towards the middle of this decade.

“Even major incumbent lithium producers are at risk of failing to meet targets and expansion plans, highlighting the technical and financial hurdles involved with bringing sizable volumes of new capacity online,” Baylis said.

(GRAPHIC: Lithium carbonate equivalent -- refined output and demand - here)

Reporting by Pratima Desai; Editing by Nick Macfie

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