Four Days in Chile

Last week I was in Chile, primarily to record an episode of the Global Lithium Podcast podcast with Dr Eduardo Bitran the former head of CORFO and a central figure in the "Drama in the Atacama" as well as to catch up with many people involved with the lithium industry in Chile. After just four days the podcast with Dr Bitran has over 10,000 downloads. Clearly the lithium world wanted to hear what the central figure in restructuring the CORFO agreements with SQM and ALB had to say.

Those of you that haven't heard the podcast can find it at www.lithiumpodcast.com episode 27 or you can listen to the easier to download two-part version E28 and E29. Dr Bitran is very candid in his remarks. Clearly from his perspective Albemarle is playing a "fast and loose" game with Chile. ALB's current legal issues validate this theme.

From my perspective, ALB has entered a period of "De-Worseification" with their recent acquisition of an interest in Wodgina in Australia (for non native speakers of English this is "word-play" on the concept that ALB's diversification efforts are only making the company less valuable or "worse" overall) but I will write more about that next week in my "2018 Parting Shots" post. Of course, SQM does not escape criticism from Dr Bitran for many of their actions but he makes his case better than I can so listen and learn.

After the podcast, I was interviewed by El Mercurio published which was published on 12/20/2018. A link to the Spanish version is here: https://www.elmercurio.com/Inversiones/Noticias/Analisis/2018/12/20/Mr-Litio-Veo-a-los-precios-globales-promedio-del-carbonato-de-litio-entre-US-12000-a-US-14000-la-tonelada-en-el-corto-a-mediano-plazo.aspx For some reason they like the "Mr Lithium" thing.

Mr. Lithium: "I see global average prices for lithium carbonate between US$ 12.000/t and US$ 14.000/t for the near and mid - term ”

The president of the consultancy Global Lithium LLC, Joe Lowry, explained his projection of the fundamentals of the lithium market and for the electromobility.

Last week Joe Lowry, president of the consultancy Global Lithium LLC, visited the capital to meet with stakeholders of the lithium industry, like Eduardo Bitran. El Mercurio Inversiones interviewed "Mister Lithium", as he is popularly known, one of the only experts commenting publicly that has deep lithium industry experience. Mr Lowry worked for 23 years at FMC Lithium. Also, present was Emily Hersh, Managing Partner in DCDB Group who, with Lowry, co-host the popular "Global Lithium Podcast" (www.lithiumpodcast.com)

–What is your outlook for lithium prices?

–I have stated on numerous occasions in interviews and via social media that I believe the “new normal” price for high quality lithium carbonate will be in a range between US$ 12.000/t to US$ 14.000/t. I still think that this a reasonable projection for the next year or two. Currently SQM’s price is well above this level but in some cases other producer’s pricing moderates the average.

–How do you see the prices of Albemarle?

–Albemarle is still lower than SQM in many cases but they are increasing their prices. You can look at public documents and see, how much lower than SQM their prices have been in the past. If you have major clients disclosing their prices and understand how to read the export and import statistics in various countries, you can get very good picture of the situation. You have to review the numbers carefully every three to six months but daily or weekly prices have almost no value and, in fact, can lead to confusion. It is a very difficult task to predict prices five years from now although many clients ask me to do this. One more point on Albemarle, if you look at the Chinese export statistics, it is very obvious that Albemarle’s pricing to Panasonic for the Tesla supply chain is well below market levels. Please listen to our podcast with Eduardo Bitran for more details on Albemarle’s price.

–How do you see the shift of the demand from hydroxide to lithium carbonate?

–I have said publicly many times that hydroxide currently has a faster growth rate than carbonate, but the shift to high nickel (811 NMC cathode specifically) is probably going to be much slower than many analysts think. Generally speaking the big bankers like Morgan Stanley don't have a broad base of well informed industry contacts or experience they can use to judge what they are told. Many of their predictions are made with misguided assumptions rather than facts.

–What about the hard rock producers in Australia?

–The hard rock producers are very important to the growth of the industry but recently many of them want to be the “lithium story”. Many Aussies say that “hard rock is better than brines” and and the “era of brine has passed”. The fact is the best brine resource is the lowest cost route to lithium carbonate and the best hard rock resource is the lowest cost route to hydroxide. However after the best resources, the cost curve is more complicated. The world needs a mix of hard rock and brine assets in production to provide enough lithium chemicals for the growth of electromobility and energy storage systems for renewables.

–And, how do you see the lithium production in the Salar de Atacama?

–I don't believe that the Atacama can produce as much lithium as many seem to believe, The Atacama is the best lithium resource in the world but the ecoystem is dynamic and complex. Ramping up and expanding production is not simple. Albemarle and more recently SQM have clearly demonstrated this fact.

–Considering your experience, what characteristic do you like for a lithium producer to have?

– A large and sustainable resource on the low end of the cost curve with excellent quality systems, access to expansion capital and good corporate governance.

–I know you have been working with Ganfeng as consultant. How do you see Ganfeng?

–I have known the founder Li Liangbin and the Vice Chairman Wang Xiaoshen for many years. I have worked with them since 2002 as a customer, as a supplier and later on as an advisor. The thing that is different about Ganfeng is that they started out as a small producer in China from a poor province with no raw materials of their own. Through creativity and hard work they became what I believe is the most innovative lithium producer in the world capable of processing various types of raw materials from spodumene to brines to customer recycle streams. They now have an excellent resource portfolio but actually became larger than FMC before they owned any of their own resources. They also have a battery production company as well as battery recycling. By 2023, Ganfeng will be one of the top two lithium producers. It is an amazing story.

A further follow-up to the interview was done today regarding Orocobre’s recent quarterly report and low pricing.

Please comment on the recent low price results announced by Australian Junior Orocobre.

Actually I think it is quite simple, Orocobre has struggled with product quality from their start-up. In fact the product initially was so poor they had to create a new grade name for it – primary grade which meant it didn’t meet any existing specification. The only reason the product sold in the beginning was because there was a shortage in the market and the Orocobre product was only usable in most cases after a third party re-processed the material. Recently in China; local, poor quality brine product has been in greater supply, selling in the market at very low pricing. This is the material that much of ORE product is comparable too and, for the most part, competes with. You cannot compare ORE’s results and pricing with suppliers like Ganfeng, SQM, ALB, Livent, and Tianqi that make almost 100% of their product to global product specifications unlike Orocobre.