Lack Of New Supply Places Lithium Oligopoly In Strong Position

Summary

  • Lithium demand has doubled over the past decade and is expected to double over again by 2020.
  • Review of the lithium oligopolies’ production capacity, location and recent investment in production expansion.
  • A possible low cost producer backed by Toyota could join the lithium oligopoly.

With the volatile global markets and gloomy headlines, it is easy to lose track of the strong underlying fundamentals at play in the lithium sector. Unlike many other established commodities that have mature but cyclical end markets the use of lithium as more than a niche commodity is an emerging phenomenon. While demand has not been completely immune to macro economic trends, it has been rather resilient. Lithium demand has doubled over the past decade and is expected to double over again by 2020. What is primarily driving demand currently is the rapid adaption of Lithium Ion batteries in everyday consumer and hardware applications along with the uptake in new applications such as stationary energy storage and the widespread uptake of hybrid and electric vehicles such as those produced by Tesla Motors (TSLA). On the heels of these trends, there have been a flood of new investments, acquisitions, mergers, and price increases within the lithium production industry.

The top lithium producers, which are an oligopoly in the market have recently further consolidated the industry. This was accomplished in 2012 when Chinese lithium-giant Chengdu Tianqi acquired 100% of Talison Lithium Ltd., which owns and operates the Greenbushes hard-rock spodumene mine in Australia. The deal was an all cash transaction valued at $850 million. In 2013, Rockwood Holdings Inc. said that it would acquire a 49% stake in Talison from Chengdu. Collectively, today the lithium oligopoly accounts for almost 95 percent of global lithium supply including Soc. Quimica & Minera de Chile SA (NYSE:SQM), Rockwood Holdings Inc. (NYSE:ROC) and FMC Corp. (NYSE:FMC).

With little low cost “Green Field” lithium production coming online the investment focus will be on these key large lithium producers. Here is an introduction to each company, production capacity and location:

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February 2019
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