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James Walker (CEO) - The State of the Lithium Market and China’s Impact

February 24, 2017

An unusual market situation has arisen because of China’s unique business and political nature. It might just be that the lithium market and spot price are guaranteed to expand and increase for at least the next three or four years – which is a rare guarantee anywhere in business.

 

The Chinese government issued its 13th Five Year Plan last year, affirming its intention to promote NEVs (New Energy Vehicles) - which includes electric cars, plug-in hybrids and fuel cell vehicles. The initiatives being undertaken to promote NEVs include: building a nationwide charging-station network to power up to 5 million electric vehicles by 2020, fitting residential complexes and 10% of all public parking lots with charging points, and ordering local governments to not restrict the sales and use of electric cars.

 

This last point is key as currently travel restrictions are imposed on fossil fuelled vehicles, usually mandating that certain registrations can only be used on particular days. This has caused many households to buy multiple vehicles at considerable expense. But now owning an unrestricted electric car will be both financially beneficial and more convenient. Currently there are just under a million NEVs on the roads in China but PWC predict that these initiatives will cause sales of NEVs to climb to 1.4 million units by 2020, and about 3.75 million units by 2025.

 

I investigated the success rates of China’s Five Year Plans and was informed that no target has ever been missed. Government officials are very aware that missing targets means the end of their careers so they militantly pursue their targets with a zeal our civil service would be unfamiliar with. So, assuming these government initiatives are not the first ones to fail then we have a distorted market that’s protected from capitalism’s corrective nature.

 

It is also important to note that lithium carbonate prices have little impact on electric vehicle battery costs as lithium makes up 3% or less of battery cell costs at a base lithium carbonate price of US$7,500/tonne. Consequently, foreseeable increases in lithium carbonate prices due to increased demand will not have much impact of vehicle cost - shielding the electric car market from being significantly impacted by large fluctuations in the lithium market.

 

So surely everyone should be investing in lithium and electric cars, particularly in China’s NEV market. In short, they already are. The rapidly increasing lithium carbonate spot price has attracted many investors and spurred many junior mining companies to ramp up lithium investigations, explorations and operations to take advantage of the consistently rising spot price. This invigorated interest and investment will result in many more exploitable sources of lithium, and their early investors stand to benefit significantly. The potential profits available to early investing in a junior mining company before its deposits are proven are enormous. Stocks selling for a few cents could quickly rise towards a dollar based on positive news, a windfall available in few other market areas.

 

Lithium is a sound investment for the near future, and should electric cars begin to retail at the same – or less than – conventional car prices then demand will increase sharply again. This is an exciting time to be involved in lithium exploration, and the best time in which to invest.

 

- James

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