Analyst Sees Positives for Lithium Landscape if China Goes to Electric Cars

Chemicals 
Lithium Landscape; What if China Goes 100% Electric?
• China is reportedly studying a ban on combustion engine cars. In last month’s edition of Lithium Landscape (LL), we highlighted that Germany could follow in the footsteps of the UK and France, which have moved to ban gasoline and diesel cars by 2040. Not to be outdone, China is also considering such a move according to the Financial Times, Bloomberg and other sources. While wheels are turning, China has not yet put forth a specific plan, so important details, such as a timeline for implementation, remain scarce. In this month’s edition of LL, we analyze what a possible ban on combustion engine vehicles in China could mean for growth in global lithium demand. Our conclusion: a full ban by 2040 (our base case) could boost lithium demand in China by ~3% per annum, which would boost the global compound annual growth rate (CAGR) by nearly 2% over that period.

• It’s not just the growth, it’s the visibility. Our current supply-demand model incorporates global lithium demand growth for plug-in hybrid (PHEV) and electric vehicles (EV) of nearly 100%, followed by 59% in 2018, 43% in 2019 and 32% in 2020. So, a full conversion to electric vehicles in China by say 2040 would not necessarily provide an enormous boost to near-term growth forecasts for electric vehicles. What it would do however, is… 

• EV sales continue to accelerate in China, while US growth remains choppy but positive. Sales of new energy vehicles in China increased 75% y-y in the month of August, up from the 55% in July and 30% YTD. Importantly, the strong performance was driven by sales of Battery Electric Vehicles (BEVs), up…

• Headlines show supply progress by majors and juniors alike. News flow from junior miners continues to support lithium supply expansion through open pit mining. Specifically, Pilbara Minerals has moved one step closer to commercial operations and begins the process of resource excavation. While the company continues to assess a potential phase-2 expansion to double effective capacity, we would like to see more on initial commercial quality before altering our supply model. Meanwhile, on the brine side of the supply equation.. 

• Lithium carbonate prices continued rally, while lithium hydroxide ticked up in August. We judge that contract lithium carbonate (LC) prices increased 9-10% sequentially in August, bringing the price up 37% YTD and 37% on a y-y basis. Prices continue to move higher given ongoing strength in Chinese demand which is keeping concerns over supply front of mind. According to consultant Benchmark Minerals (BMI), “pressures in… 

• Stocks surge on positive price and demand trends. As depicted in Figure 5, lithium stocks, both small and large cap, rallied on improved pricing commentary and headlines that China will move to ban fossil-fuel free transportation. Volumes on the Lithium and Battery Tech ETF have also ramped sharply accordingly. On the whole, shares of the lithium juniors performed best during this time period as concerns for 2H price weakness in the underlying commodity market were alleviated 
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