Forbes

FORBES ASIA

COMMODITIES

18 | FORBES ASIA JULY 2016

produce the same amount as Green-

bushes but have the capacity to pro-

duce 400,000 tons a year, more than

double current global consumption.

It is in Mitchell’s interest to fright-

en small potential rivals by claiming

that Albemarle aims to capture 50%

of forecast annual demand growth of

20,000 tons of lithium a year for at

least the next five years. But invest-

ment banks seem to agree that the

lithium boom will soon end. Macqua-

rie noted in a May 31 report that half

of the recent price increase was being

driven by “short-term supply con-

straints” and would move back into

balance in 18 months. “Fully charged,

but no shortage,” the report adds.

Deutsche Bank noted a week earlier

that major producers were respond-

ing to demand growth, with Chile’s

SQM, FMC of the U.S. and Albemarle

signaling production increases.

If Albemarle can meet its target of

capturing 50% of future demand for

lithium, and if other entrenched pro-

ducers also step up to meet demand

for the so-called new petroleum, it

doesn’t leave a lot for newcomers.

Despite lithium’s high profile as
a “future metal,” its annual produc-
tion is modest compared with other
metals. Last year’s 185,000 tons were
worth $1.3 billion at the long-term
average price of around $7,000 a
ton, roughly one-third the $20,000 a
ton sometimes quoted in short-term
trades. “What you have at work [in
the short-term market] are Chinese
traders who are trying to buy up
product and then sell it to another
trader, who sells it to another trader,”
Mitchell says. “It’s really just the
spot market price in China which
is winding up the numbers people
throw around such as $20,000 per
ton, but those prices are on very
small volume.”
Most of Albemarle’s lithium, and
the material produced by other big
producers such as Chile’s SQM and
another U.S. company, FMC Corp.,
is sold on long-term contract, which
is typical of small, specialist miner-
als, where supply reliability can be
more important than price. “We have
flexibility in our pricing, but we feel
that long-term agreements are a good

way to do business, because this is

an emerging industry which requires

capital investment not just on our part

but by our customers as they build

energy storage production capability,”

Mitchell says. “They need a predict-

able, reliable supplier, and we want to

make sure you can grow and supply

batteries to the Teslas of the world.”

The lithium business reveals

several sobering points for investors

hoping to cash in on a hot market.

The first is that traders appear to

have “financialized” lithium, either

by passing along the same material to

other traders, as mentioned earlier,

or by using the metal as a collat-

eral for bank loans, in the same way

copper and other metals have been

traded in a market-distorting way.

The second, and even more criti-

cal point, is that the Greenbushes

mine—which is producing about

65,000 tons of lithium a year (half to

Tianqi and half to Albemarle)—has

the capacity to produce 160,000 tons

annually, which is close to current

global consumption. Albemarle’s

Atacama brine operations in Chile F ELIZABETH FLORES/ZUMA PRESS/NEWSCOM

Contributing to the lithium boom: potential customers lining up at the Tesla shop in Eden Prairie, Minnesota for the Model 3 car.