Alliance Mineral Assets' FY18 results statement, released this evening, contains an unusually long commentary on industry and market trends. The commentary, in Section 10, is as follows: 

 

A significant trend recently within the lithium sector is the recent marked downturn in Chinese lithium carbonate prices.

Commentary on this topic has dominated sector research and discussions since early 2018, and particularly over the last three months.

When lithium prices began to spike in second half of 2015, it seems that few analysts were expecting battery-grade lithium carbonate to peak around $24,750/tonne in 1Q 2018 1.



spodumene3.18At Bald Hill project in Western Australia, spodumene-bearing lithium being stockpiled for shipment to China. Photo: Company



Industry commentators explain that a slow supply response to rising carbonate prices pushed prices beyond most expectations, but a disconnect between lithium prices in China and the rest of the world, also appears to have been at play.

Consequently, the recent correction in China’s lithium carbonate prices should not have been particularly surprising.

Commentators like Benchmark Mineral Intelligence 1 indicate that what’s happening in China is not necessarily a reflection of global market conditions elsewhere; nor does it appear to be the case for lithium hydroxide.

Alliance Mineral 
stock price 

27 c

52-week range

21 – 46 c

PE 

--

Market cap

S$178 m

Shares outstanding

659 m

Dividend 
yield

--

1-year return

12.5%

Source: Bloomberg

The longer term nature of contracts for most of the market outside China is likely to continue to insulate companies like AMAL whose offtake agreement has fixed for a period of time. 


In AMAL’s case, the Company’s selling price for lithium are fixed through 2018 and 2019.

There is also another important factor at play, a change in China’s Electric Vehicle (“EV”) subsidy programme in first half of 2018 has interrupted anticipated demand growth.

"... with companies like LG Chem announcing significant expansion in manufacturing capacity, the volume of raw materials being locked-in by such industrial titans suggests to us that lithium’s long-term positive trajectory remains intact."

Nonetheless, reports suggest that new EV production in China is still up 94% in 2018.

The ongoing ramp up of Tesla’s Nevada Gigafactory and other mega-factory expansions around lithium-ion technology, also suggest the longer-term outlook for lithium demand is still strong 2

The bottom line seems to be that the price downturn in Chinese carbonate is not the complete story for lithium.

Segments along the battery supply chain, from mine to chemical plant to cathode and battery manufacturing, are unlikely to be entirely in unison. Consequently, there are likely to be periods of supply/demand imbalance 3.

However, with companies like LG Chem announcing significant expansion in manufacturing capacity, the volume of raw materials being locked-in by such industrial titans suggests to us that lithium’s long-term positive trajectory remains intact 4.

References:
1. https://benchmarkmineralsl.com/ China’s Lithium price decline is not the full picture to an industry surging, August 2018

2. https://roskill.com/Lithium: LG Chem locks-in more raw material to meet future battery demand/

3. Lithium 2018 Recharge: Global Equity Research 26 April 2018, Reg Spencer, Canaccord Genuity

4. https://roskill.com/Lithium: LG Chem locks-in more raw material to meet future battery demand Lithium 2018 Recharge: Global Equity Research 26 April 2018, Reg Spencer, Canaccord Genuity


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