The Coronavirus and the Lithium Market
Dear Shareholders & Friends,
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% per 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.