Dirk Harbecke, Chairman of Rock Tech Lithium, provides background to the lithium market
Enclosed in brief (and thus also very simplified) is my take on the effects of the Coronavirus crisis on the lithium industry and Rock Tech. We will come through the crisis well. The lithium sector is only at the beginning of an enormous growth phase where the demand and production of batteries is constantly increasing. We think in 3-5 year cycles with growth rates of almost 30%/year; however, we also see a shift in demand of about 3-5 months this year – which is unpleasant in the overall picture but it is manageable. For explanation:
The situation before the crisis
China is the world’s largest automobile market and represents more than 50% of worldwide electric car sales – including European brands such as Volkswagen and BMW. The serious change in the car industry began long before the onset of Coronavirus. In Europe, manufacturers are experiencing difficulties trying to bring new electric cars on the market in time to reach the EU CO2 limits from 2021 and to avoid penalty payments. The primary reason for these difficulties is bottlenecks in the supply of battery cells. Mercedes, Audi, Jaguar, Porsche and others have twice as many orders for cars than is possible for them to deliver. At present, 90% of battery cells come from South Korea, China and Japan. On a worldwide basis, the number of battery cell factories has risen from 2 to 45 since 2015, but only a few are yet producing at full capacity. A further 80 cell factories are planned, 5 of them in Germany. The price of lithium rose from US$5,000 per tonne in 2015 to US$20,000 in 2017 before moderating to US$10,000, where it stagnated for a few months. Lithium production increased from about 120,000 tons in 2015 to 280,000 tons in 2019.
The situation today
VW and BMW have closed their plants in Europe. In China, the most important market, production is starting up again after a few weeks of plant closures and more than 90% of car dealers there have reopened. In China, Guangzhou, Foshan, Xiangtan and Changsha are providing subsidies to incentivize electric car purchases; additional cities are expected to follow suit. In South Korea, the plants are also running again. Outside China, many investments in cell factories, including the planned Opel battery cell factory, are currently on hold due to market uncertainty. Logistics chains are partially interrupted (ship traffic from China). Lithium production has been slightly reduced, partly because workers are staying at home and mines have to shut down. As a result, the supply of lithium may fall by up to 10% over the year. This is manageable for the industry. As I mentioned earlier, the expected demand ramp up may possibly be postponed by 3-5 months, but there are still orders on hand to be processed and the demand base is growing very strongly in the medium term. As a result, lithium prices have already started to rise for a week now.
Currently, electric car sales account for only about 5% of global car sales. The crisis will cause the big car manufacturers to accelerate the change and seek a breakthrough – through the faster expansion of electric mobility and new software systems. Sustainability is becoming an increasingly important issue. The undersupply situation in the lithium market still expected for 2020, or 2021 at the latest, will cause prices to rise further as necessary investments have been put on hold. Smaller explorers are now being forced out of the market and there will be meaningful consolidations. Many large corporations will take the opportunity to buy into the lithium market – Wesfarmers from Australia is leading the way here. The demand for lithium will be around 1 million tonnes/year in a few years – more than 3 times as high as today and that”s not even taking into account the emerging demand for stationary energy storage and grid management from the rapidly growing renewable electricity industry. In just a few years, this segment alone will account for around 50% of the volume of the car battery market.
Our new CEO, Simon Bodensteiner, who recently joined our team, comments on what this means for Rock Tech:
For Rock Tech the crisis offers an opportunity. With the cash we have raised in our last private placement and our extremely lean operating structure we do not only have the necessary funds to move our Georgia Lake lithium project forward in the short term but also to take advantage of lower peer valuations. It improves our chances for favorable district consolidations and acquisitions. We continue to ramp up our permitting efforts at Georgia Lake so that we do not lose one day towards production. At the same time, we are actively exploring options to grow our business beyond a single-mine-company. Since 2018 the lithium producers and developers have been facing quite strong headwinds. Many projects have failed and it has become increasingly clear to the battery and car industry that there are not many reliable lithium sources available. We think that Georgia Lake, with its favorable location and infrastructure, offers a competitive advantage over most other North American lithium projects in that regard. In addition, we intend to take full advantage of our excellent German car industry network to establish ourselves as their partner of choice. It is our clear intention to make Rock Tech Lithium a major, reliable producer of lithium products for the North American and European battery industry. I am looking forward to tackling this exciting challenge together with our team and partners.
Chairman of the Board
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Rock Tech Lithium Inc.
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