PDAC 2012: Lithium demand poised to grow

Remember lithium? It has been more than two years since lithium equities went on a crazy run, when investors suddenly realized that a lot more of the stuff was going to be needed down the road in order to power electric vehicles. The market has calmed down since then, and a lot of the junior lithium companies that raised money are going nowhere. However, the outlook for the silvery-white metal remains promising, with plenty of growth in the near term from electronics and the promise of vast demand from electric vehicles in the future. The market continues to be dominated by four main players, one of which is Toronto-listed Talison Lithium Ltd., which went public in 2010 and controls about 30% of global lithium production. Chief executive Peter Oliver spoke with Financial Post’s Peter Koven about his company, the growing lithium market, and why some of his smaller competitors are going to struggle to get off the ground.

Q There was a period when everyone wanted to talk about lithium. You don’t hear about it nearly as much anymore. What is the market like these days?
A That big run a few years ago was a lot of hype around electric vehicles. To be honest, that’s never been our focus. We’ve been producing for 25 years and sales have grown an average of 15% a year for the last 10 years. The electric vehicle story is still some years away, so what’s driving growth at the moment is new applications, such as small-format batteries and aerospace alloys and solar energy applications. iPads are a classic example. I think they reached 50 million sales in half the time it took iPhones to do it. They just take off so quickly and the demand is quite strong from things like that now. So there’s a whole raft of new industries developing using lithium, and the electric vehicle story is really the future.

Q When do the electric vehicles kick in?
A We’ve consistently had the view that it’s probably 2015 before there’s going to be a significant increase in demand for lithium from electric vehicles. There’s nothing out there at the moment to suggest it will be a lot quicker than that. But there’s definitely a lot of work being done and a lot of momentum building.

Q What happens to the market once the electric vehicle demand does ramp up?
A I think the lithium market will double or more in the next 10 years. We’re doubling our production capacity, and the other existing producers are also expanding their capacity. [But] I think there’s no risk of a shortage of supply. There’s plenty of capacity within the existing producers to meet a large proportion of growth from the market, including electric vehicles.

Q That’s an interesting comment, because there are a lot of junior companies trying to raise money that have quite a different message.
A Well, they would have (laughs). The existing four producers have a much lower cost base and they’ll expand first and capture the market growth. It’s not until the market grows beyond the capacity of those four, which is some years away, before there’s a gap in the market for new producers that have a higher cost base. It will be a very tough road for [juniors], that’s for sure. If you went back to what people said a few years ago, a lot of them should already be in production. They still haven’t got funding. It’s a really tough road to get into production.

Q How big is the market right now, and how fast is it growing?
A It’s roughly 150,000 tonnes of lithium carbonate equivalent [a year], which is the standard unit that lithium products are compared to. We’ve been growing at 15% per annum for the last 10 years. Global demand is growing a little less than that, but it’s still quite strong.

Q Is the market in balance right now?
A The market is fairly tight right now, and prices have started to move up. The existing producers are all expanding, so they’re pretty much all fully sold, including us.

Q What about price?
A It’s in the order of US$5,500 to US$6,000 a tonne, depending on the grade of lithium carbonate. In 2008, it peaked around about the same level. Then it dropped a bit through the next couple of years through the global financial crisis. And now it’s just started to get back to 2008 levels. We’ve increased our prices this year by about 15%.

Q How did Talison get into the business and seize such a large amount of the market share?
A Talison started with producing [lithium] concentrate for the glass industry 25 years ago. In the last 15 years, the market has developed in China for lithium concentrates for conversion into chemicals. And it’s really in the last 10 years that our market share has exploded. We’ve got about 80% of the Chinese market, and probably a similar percentage of our sales go into China. Which is probably why we have a low profile, because no one really knows what’s going on in China.

Q What is your key message for investors?
A I think the key theme is that there’s a long lead-up time to bring on new production. But on the demand side, new technologies are coming onstream so fast that we need to have capacity in place now to capture the growth that comes in the future. And if you wait for the demand to be there, you won’t be able to meet it. So we’re putting our production capacity in place now to meet that future growth.