1/29/2021 Lithium market recharges as electric vehicle sales rise | Financial Times

Industrial metals
Lithium market recharges as electric vehicle sales rise
Value of battery material is steadying after 3-year downturn, helping related shares to rally

Sales of electric vehicles and plug-in hybrids are expected to rise 28 per cent this year to 2.78m vehicles © Ivan Alvarado/Reuters, FT montage

Henry Sanderson DECEMBER 3 2020

Surging sales in electric cars have encouraged investors to bet on a rebound in the lithium market,
setting off a dizzying rally in equities linked to the raw material.

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Lithium-related stocks have been on a turbocharged run in recent weeks, encouraged by a growing
number of cars rolling on to the roads of Europe and China. Shares in Albemarle, the world’s
largest producer of the battery raw material, have soared more than two-thirds since their
September low. Over the same period, Australia’s Pilbara Minerals has doubled in value.

The sector’s momentum has been encouraged by its association with the green agenda, an
increasing focus of investors and governments, as well as one of the hottest market stories of 2020
— the almost 600 per cent share price rise of carmaker Tesla, which uses the material in its
batteries.

The recent move reflects growing optimism about the mass market penetration of electric cars that
use lithium in their batteries, say fund managers. Sales of electric vehicles and plug-in hybrids are
expected to rise 28 per cent this year to 2.78m vehicles, according to consultancy Rho Motion.
European sales are expected to creep past those of China, helped by subsidies in Germany and
France.

“The stock market is always a forecasting animal . . . but it has a high-powered set of binoculars on
at the moment,” said Will Smith, co-founder of Westbeck Capital Management in London. “Clearly,
EV demand has surprised everyone to the upside this year and that is going to continue given the
shift by governments to greener forms of transport as a way of stimulating economies.”

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The shift in sentiment follows a three-year downturn in lithium prices caused by an oversupply of
the raw material from new mines. Now, lithium prices may have bottomed, especially in Australia,
the world’s largest producer. From a peak of more than $900 a tonne in 2018, prices for Australia’s
lithium-containing spodumene rock have fallen to $375 a tonne — below the level where most
mines can make money.

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But prices were flat in October, according to Benchmark Mineral Intelligence, a consultancy. At the
same time, domestic Chinese prices for lithium carbonate, a processed form of the raw material
that is used in batteries, rose almost 1 per cent.

Wang Xiaosheng, chief executive of China-based lithium producer Ganfeng Lithium, said the price
rise was driven by growing EV sales as well as growth in consumer electronics such as laptops as
more people work from home due to Covid-19. Tesla last year opened a factory in Shanghai that
produces its Model 3 vehicle, some shorter-range versions of which use lithium carbonate.

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1/29/2021 Lithium market recharges as electric vehicle sales rise | Financial Times

Tesla’s chief executive Elon Musk said last month that the carmaker’s new factory in Berlin would
expand to produce as much 250 gigawatt-hours of batteries a year — equivalent to about half of
this year’s global production capacity.

Tesla’s stunning share price rally this year has lifted its market value to more than $500bn.
Investors who had backed the company, and other high-flying EV stocks such as China’s electric
carmaker Nio, were paying more attention to materials producers, said Westbeck’s Mr Smith.

To reach Tesla’s goals would require an expansion in the lithium sector, he added, but building a
new mine could take up to five years — meaning a potential shortfall in supply if demand kept
growing. “You’ve got a hugely well-capitalised demand sector and the supply sector is still coming
out of the trenches with a few plasters on,” Mr Smith said.

Still, Ganfeng’s Mr Wang cautioned that faster growth of EVs in China was constrained by lack of
charging facilities in the biggest cities. “It’s a big question for the market — a 10 to 20 per cent [EV]
penetration rate is still fine but beyond that there needs to be a way to address the charging.”

Lithium supply could still expand rapidly in Australia, as it did when prices hit a record high in
2017, he added. That presents a longer-term threat to the market rebound.

But such a snapback in production might not come quickly. In October, Australian lithium miner
Altura went into administration after it failed to raise enough funds to pay off its debts.

This week, Pilbara agreed to acquire Altura’s lithium project for $175m, in a deal backed by
Australia’s largest pension fund, AustralianSuper. But Pilbara chief executive Ken Brinsden said
there was “no incentive” to restart the project at present. “The industry is not going to expand at
today's prices,” he added. “Inevitably, there has to be a price increase if the industry wants to
satisfy the growing demand.”

Meanwhile, US producer Livent — which last month said it had extended its supply agreement with
Tesla through 2021 — has agreed to invest in Canadian miner Nemaska Lithium, a company that
went bankrupt last year.
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Howard Klein, founder of RK Equity, which invests in the sector, said equity markets “are pricing
in a lithium price rise and they’re going to get a price rise — inventories are depleting and there will
be consolidation and more discipline”.

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