An overview of the lithium market, including factors impacting demand such as electric-mobility, energy storage and battery technology, but also factors influencing supply growth. Vincent Ledoux Pedailles

1. Lithium Market
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Looking for directions
August 2018

2. I. Lithium Demand

3. I.
Lithium
Demand
• Lithium demand forecasts from
various market observers concur
towards 2025 demand reaching
more than 4 times 2017’s level to
more than 0.8Mt
• For the last couple of years, those
numbers have kept being pushed up
following a number of supporting
factors

4. 1. Strong supporting factors for battery growth
Governments are not just targeting lower CO2 emissions, a number of countries are
also talking about phasing out completely ICE
Automakers announced the introduction of new EV models but also sometimes plans to
electrify their entire fleet. They are securing large buying deals with battery producers
Battery manufacturers, mostly located in Northeast Asia, are multiplying billion dollar
investments in gigafactories, which will allow them to keep battery cost declining
Customers are growingly attracted to EVs, not just because they are cleaner, but
because they finally look good, are increasingly affordable, offer an extended driving
range, and will soon directly compete with ICE in terms of cost of ownership
Strong LIB growth is not just coming from EVs but also from many other applications in
E-mobility (e-buses, e-trucks, e-barges, e-bikes, etc.) and energy storage (ESS)

5. 2. LIB dominate the space
• Today, LIB’s lighter weight, higher energy density and falling cost have led them to
almost 100% market share in the E-mobility market
• Tomorrow, larger economies of scales and improved manufacturing process will
push costs further down and the technology will keep improving
• Most new battery technologies are still at a very early development phase
• Solid-state batteries, a technology that has seen a rising wave of investments, is
not expected to conquer significant market share until early to mid-2030
3. Will the Li-ion king be overthrown?

6. • The size of the battery pack is gradually increasing to reduce customers anxiety
• In China, the new subsidies are encouraging larger battery packs and longer driving
range, whilst reducing or eliminating subsidies for smaller packs
5. Range anxiety leading to larger batteries
• Profitably recovering lithium from LIB at a large scale is still far away
• In the long term, battery recycling could become a secondary source of lithium
• In the meantime, using end-of life batteries from EVs into second life applications is
also being studied
4. Will recycling change the game?

7. 6. Lithium to stay, Nickel to
thrive, Cobalt to decline
• Lithium is the only element in a LIB that
can’t be substituted
• NMC will dominate E-mobility
application in the coming years. In order
to move away from cobalt and develop
more energy dense cathodes, the industry
is moving towards nickel-rich cathodes
such as NMC 811
• This transition will take years and also
requires increasing cathode 811’s low
cycle life and improve its stability

8. 7. Changing cathode types also means changing lithium
requirement
• Lithium hydroxide has become the preferred lithium chemical for cathode
manufacturer as they move towards nickel-rich cathode such as NMC 622 &
NMC 811
• Lithium hydroxide demand is growing faster than lithium carbonate and
most of the recent investments in lithium chemical plants have been in lithium
hydroxide production
• In solid-state technology, lithium metal will be used on the anode side. Lithium
metal supply is not yet ready for solid state with very limited production and
very high prices

9. II. Lithium Supply

10. II.
Lithium
Supply
• In order to match demand, lithium
supply should quadruple in less than
ten years.
• Lithium production is difficult to bring
on stream and historically, most
projects have been delayed
•
• Supply growth will be challenged by
numerous factors that will make it
difficult to deliver sufficient material
to feed battery growth

11. 1. Supply growth has always been slower than expected
In 2012, lithium capacity was anticipated to triple by 2016. In 2016, capacity had only
increased by 15% vs 2012. All recent projects/expansions have histories of delays
Most brines are situated in remote locations with adverse climate - building a lithium
production plant is logistically, technically and humanly difficult and expensive
Reducing varying and changing amount of impurities in order to consistently achieve a
battery-grade product takes a long time
Relying on a third party converter or miner can lead to delays. The development of
either sides in terms of timing, volume and material grade don’t always match
New projects led by junior miners are facing a major challenge: financing
New projects relying on new technologies or/and new feedstocks will take longer reach
production

12. 2. Chinese spodumene conversion capacity doesn’t equal to
production
Nameplate conversion capacity and actual production are very different. Operating
rates are low, estimated around 60 to 70%
As capacity is not sufficient to convert all the imported spodumene, it is creating
stockpiles of both concentrate spodumene but mostly unprocessed DSO
A lot of the new Australian supply is lower grade spodumene. At the same time, the
quality of the converted end-product has been criticized
Offtakers are not equal: some are not ready to convert all the spodumene they will
source, some might have limited experience and others can be financially instable

13. 3. Financing – the biggest hurdle
for junior miners
• Fear of oversupply is partly led by the number of
lithium projects (400 including 90% at exploration
stage)
• Financial institutions are reluctant to invest into an
emerging, relatively unknown and non-hedgeable
market
• Mainstream banking institutions limit investment in
junior miners and are expensive
• Most junior miners have had to secure investments
via offtake partners as a first step – it de-risks the
project and therefore facilitate financing

14. 4. China dominates the lithium
supply chain
• China accounts for only 7% of lithium extraction,
but thanks to its investments and offtake
agreements, it controls half of the world lithium
chemical production
• For example, in 2017, two thirds of all offtake
agreements concluded where negotiated by
Chinese companies
• China also controls a majority of cathode
production, lithium-ion battery production, and is of
course the largest producer of EVs today

15. 5. Lithium is not a commodity –
it’s a specialty chemical
• Lithium is spilt into different chemicals products
with different grades and specifications
• The number one priority for a battery/cathode
producer buying a specific lithium product is
consistency of the product specification
• Some lithium products degrade rapidly with time
• As lithium is not a commodity and its market
remains small, there are no hedging tools
available

16. III. Costs and Prices

17. III.
Cost & Prices
• The lithium chemical cost curve is
flattening led by higher royalties
impacting low cost Chilean producers
and operating costs equalising between
rock and brine for lithium hydroxide
• Despite lower spot prices in China,
global contract prices are still holding
up
• Prices will need to sustain at high levels
to stimulate investment and allow
sufficient supply to be built to feed
battery demand

18. 1. Flattening cost curves
Main factors:
• Higher royalties on low cost producers in Chile led to higher operating costs
• Lithium hydroxide is growingly produced from hard rock, a straight conversion
process as opposed to brine
• Further integration of hard rock mines into spodumene conversion and a reduction
of DSO will contribute to lower hard rock on the cost curve
But…
• New lithium projects will be more expensive to develop as the quality of their
deposits is lower than existing leaders
• New technologies could potentially bring costs down but they are still are a very
early development stage

19. 2. Contract prices should maintain at a delta above costs
Contract prices are unlikely to fall dramatically to cost levels but rather remain at a
delta above them
Money is needed to pay back investments and to finance upcoming expansions or
projects, which both come on top of cost levels
A sufficient margin needs to be added to attract investment and generate acceptable
return on capital
A lower lithium price and therefore falling investments might lead to an undersupply
situation down the line

20. 3. Lithium is a contract market,
not a spot market
• Spot prices in China do not represent
lithium prices globally, most volume are
medium and long term contracts
• According to industry experts, pure spot
volume represent less than 10% of
global lithium volumes
• Lithium contract prices are still going up
or holding up
• There are very limited sales of battery
grade material in the spot market

21. 4. Market and price misconceptions have impacted lithium
stocks
Share prices for most major and junior lithium producers went down following fear of
oversupply first, and followed by a drop in Chinese lithium spot prices
The fear of oversupply is believed by many to be unfounded and Chinese prices do not
represent the lithium market
Quarterly reports from lithium producers have all shown some strong results and
increasing revenues and profits
The environment can potential some good BUY opportunities

22. Conclusions
• Tremendous and unquestioned demand growth led by E-
mobility and Energy Storage will put pressure on lithium
supply
• Despite promises and optimistic forecasts on the supply
side, it is a fact that expansions and new plants suffer
delays led by a number of technical and financial
difficulties
• Lithium is not a commodity therefore doesn’t obey the
same rules
• The fear of a long market could lead to insufficient
investment in new projects whilst demand will still be
growing strongly, thus potentially creating a shortage in
the future
• The market is likely to remain in a balanced to tight
situation in the coming years and prices are unlikely to
reach cost levels despite some potential erosion