Chilean lithium producer SQM’s share prices
have gone down by 13% in less than a week to stand at $50.71 at
the close of the market on Wednesday February 28, compared with
$58.32 on February 23.
Investors’ fears of oversupply in the lithium
market were triggered on February 26 with the release by
investment bank Morgan Stanley of research suggesting that the
price of lithium could fall by 45% by 2021 because of the
planned expansion of lithium production in Chile by that
Consequently, SQM’s share value dropped despite
the announcement by the company on Wednesday of solid results
SQM’s earnings increased by 53.6% to $427.7
million for the full year of 2017, from $278.3 million in the
full year of 2016.
The robust results achieved in 2017 were a result of strong
lithium demand alongside the significantly higher prices
achieved for lithium compounds throughout the year, chief
executive officer Patricio de Solminihac said.
"We achieved the same sales volumes in our lithium and
derivatives business in 2017 as in the previous year, but
prices increased by 25%, with the average price rising to more
than $13,500 per tonne in the fourth quarter [of 2017]," he
The prices for lithium carbonate, battery grade (min 99.5%),
rose to $17.50-19.50* per kg on a cif China, Japan & South
Korea basis, and to $15.50-18.50 per kg on a ddp Europe and US
basis, on Thursday March 1. This compared with an average price
of $7 per kg in March of 2016, according to Industrial Minerals
The average spot price of China-origin lithium carbonate
(Li2CO3), ex-works China, battery grade (min 99.5%), remained
strong at 150,000 yuan ($23,705) per tonne*, according to
Industrial Minerals’ assessment on February
Under a new agreement with Chilean economic
development agency Corfo, SQM is allowed to increase
lithium compounds production to 216,000 tonnes per year by
2025, from 49,700 tonnes of lithium products in both 2017 and
Meanwhile, rival producer Albemarle could increase its lithium compounds
production in Chile this year to as much as 125,000 tpy,
from 44,000 tonnes of lithium products in 2017.
In SQM’s 2017 results, de Solminihac said that
the company would "evaluate the timing for future expansions in
the Salar de Atacama based on market conditions." He did not
say that the new agreement with Corfo would lead directly to an
increase in production toward the maximum agreed level.
With the current undersupply in the lithium market, where
end-users such as carmakers Volkswagen and BMW have no
purchasing power, different market experts and producers have
told Industrial Minerals that the projected fall in prices by
2021 would be unlikely. And oversupply of lithium would be far
from likely if we look only at current supply and demand for
this battery material.
"There is a lot of potential supply planned by the different
lithium producers and junior producers. However, when looking
at the pace at which lithium production has come online in the
past 10 years, and the current demand for lithium compounds in
China, Japan and [South] Korea, I find it unlikely that the
market [will be] oversupplied any time soon," a Chinese lithium
producer told Industrial Minerals.
In 2017, Chinese producers of new energy vehicles
(NEVs) reached total production of 794,000 units, an
increase of 53.8% year-on-year, while sales went up by 53.3% to
777,000 units throughout the year, according to the China
Association of Automobile Manufacturers (CAAM).
Bloomberg New Energy Finance expects to see the
world’s battery capacity more than double by 2021
to 320 GWh per year, from 116 GWh at present. This will happen
with support from Chinese subsidies to promoted the development
of that country’s NEV industry, which it is hoped
will produce 2 million vehicles by 2020.
Supported by strong rates of production and sales growth in
China and Asia, demand for lithium compounds is expected to
treble to nearly 600,000 tpy by 2026, against a forecast supply
of 379,800 tpy by the same year, according to Industrial
Minerals’ research document Global Lithium Market:
Five Year Strategic Outlook.
"Even after the agreement between SQM and Corfo, it will
take SQM considerable time to bring new production online. It
will take several years and would take until 2020 before the
new material reaches the market, if everything goes according
to plan," William Adams, principal consultant at Metal
Bulletin, told Industrial Minerals.
"Bringing online new lithium production has been
systematically delayed in recent years," Adams added. "A lot of
forecasts look at production capacity but producers, especially
those ramping up new capacity, will struggle to produce as much
as many expect… Greenfield production [projects] could
take as long as 10 years before they start production."
The boom in demand for lithium compounds is only starting
and has many decades ahead of it, Adams explained, adding that
the new energy industry is not just about NEVs but also about
electricity grid storage.
* All lithium carbonate and hydroxide prices are
available in the Industrial Minerals’ Battery Price
Report. Lithium technical and industrial grade prices are
available on the Industrial Minerals pricing