Reports of lithium’s demise greatly exaggerated

The Australian lithium boom is alive and well.

The gloom generated by the Goldman Sachs forecasts for a slide in lithium prices over the next couple of years has been finally dispelled by the latest Resources and Energy Quarterly from the Federal Department of Industry, which sees a substantial lift in forecast Australian export revenues over the next three years.

That’s despite a forecast for prices for lithium ores, along with key lithium-based chemicals, to ease – not fall sharply – in the June quarter.

The Goldman Sachs report, issued at the start of June, was accepted as gospel by some investors and analysts (though not by Canaccord Genuity’s Australian resources analysts) nor by noted battery metal analysts, Benchmark who argued that Goldman’s thinking was wrong for a number of reasons – mostly notably delays in construction of new processing facilities and quality problems with Chinese lithium ores compared to ores in Australia and brines in Chile.

Now the June edition of the Resource and Energy Quarterly has bullishly forecast Australia’s lithium production “to rise by more than half over the outlook period, rising from 278,000 tonnes of lithium carbonate equivalent (LCE) in 2021–22 to 438,000 tonnes of LCE in 2023–24.”

And that will see a more than doubling in the value of lithium exports in the next two years.

The Quarterly says Australia’s lithium export earnings are projected to more than double over the period, from $4.1 billion in 2021–22 to $9.4 billion in 2023-24.

The size of the boom can be seen in the very big upgrades in export revenues for 2021-22 and 2022-23 in the past three months.

The Quarterly said the “substantial upward revision” in the June edition data… “reflects a combination of sustained record spodumene prices, faster than expected pass-through of spot prices to contract prices and new production and trade data.

Australian production “is now expected to grow strongly over the outlook” (period), according to the latest forecasts in the quarterly.

“Expected annual growth of over 20% a year will see production rise from 218,000 tonnes of LCE in 2020–21 to 278,000 tonnes of LCE in 2021–22, growing to 438,000 tonnes in 2023–24. Accordingly, export volumes of spodumene concentrate are forecast to increase from 1.7 million tonnes in 2020–21 to around 3 million tonnes in 2023–24.

The quarterly says estimated export revenue in 2021–22 June 30 year has been revised up more than 46% from $2.8 billion in March to $4.1 billion.

That’s up from $1.1 billion in 2020-21 – a rise of close to 400%!

“Further out, 2022–23 has been lifted from $4.6 billion to $7.8 billion, and 2023–24 from $5.3 billion to $9.4 billion,” the Quarterly says. The latter is a rise of more than 77%.

Spodumene (a key lithium ore) “prices are forecast to rise from an average US$675 a tonne in 2021 to US$2,235 a tonne in 2022, before easing to about US$1800 a tonne in 2024.”

“Lithium hydroxide prices are forecast to rise from US$17,370 a tonne in 2021 to US$35,570 a tonne in 2022, before easing to about US$28,810 by 2024.”

“Spot prices for lithium hydroxide (delivered to China) averaged US$68,900 a tonne in May 2022, down slightly from the April average of US$74,688, but still more than eight times the US$7,984 average of January 2021,” the Quarterly said.

“As most Australian producers have historically utilised long-term contracts, prices received take time to adjust to shifts in spot prices. High average realised prices reported by Australian producers indicate spot prices are now flowing more rapidly into contract prices,” the Quarterly says.

“Anecdotes suggest that contract prices for spodumene have increased strongly so far in 2022, as processors seek to ensure supply is sufficient to meet expected demand.

But the Quarterly does point out that “considerable uncertainty exists, given recent rapid price movements and the general immaturity of the market.”

“Risks to the lithium price forecasts are balanced over the outlook period.

“While expansions to production are already underway in Australia and overseas, long lead times for lithium mine and brine operations, and the potential for delays in bringing such large volumes of lithium into production, mean risks remain of supply shortages persisting over the next few years.

“However, one of the drivers of recent high spot prices is a push by refiners and battery producers to build up stocks, due to concerns about global supply chains.

“If these concerns ease, prices could moderate more rapidly over the next couple of years. A slowdown in global economic growth would adversely affect demand and ease the pressure on prices,” the Quarterly adds.