The lithium market: 2010 review and outlook

The lithium market: 2009 review and outlook

Approachable. Independent. Expert.

Roskill

Robert BaylisManager – Industrial Minerals Research

Roskill Information Services Ltd.

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The statements in this presentation represent the considered views of RoskillInformation Services Ltd. It includes certain statements that may be deemed"forward-looking statements." All statements in this presentation, other thanstatements of historical facts, that address future market developments, governmentactions and events, are forward-looking statements. Although Roskill InformationServices Ltd. believes the outcomes expressed in such forward-looking statementsare based on reasonable assumptions, such statements are not guarantees of futureperformance and actual results or developments may differ materially from those inforward-looking statements. Factors that could cause actual results to differ

Disclaimer


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forward-looking statements. Factors that could cause actual results to differmaterially from those in forward-looking statements include changes in batteryoutput and general economic, market or business conditions.

While Roskill Information Services Ltd has made every reasonable effort to ensurethe veracity of the information presented it cannot expressly guarantee the accuracyand reliability of the estimates, forecasts and conclusions contained herein.Accordingly, the statements in the presentation should be used for general guidanceonly.

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• Demand

– The global economic downturn– Impact on lithium markets– Outlook

• Supply– Trade indicators

Outline


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– Trade indicators– Production– China update

• Project developments– Advanced projects update – 2009 – a good year for explorers

• Pricing movements

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Demand


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Lithium is consumed in wide variety of forms and end-uses

� Lithium is consumed in a wide-range of end-uses

� Lithium finds most use in carbonate and hydroxide form (around 50% of demand)

� Mineral forms of lithium account for 25% of consumption and chemicals and metal/alloys the remainder


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chemicals and metal/alloys the remainder

� Batteries have been the main driver of demand growth and, despite the 2008/09 downturn, this will continue in the 2010s with new applications, e.g. electric vehicles

� However, lower growth in mature, industrial markets for lithium e.g. greases, aluminium, ceramics & glass will temper future demand

The global economic downturn caused a sharp drop in industrial production between 2008 Q3 and 2009 Q1. Signs of recovery in H2 2009

World: Quarterly change in GDP and Industrial Output, 2006-2009 (%)

-5.0

0.0

5.0

10.0

2007Q

1

2007Q

2

2007Q

3

2007Q

4

2008Q

1

2008Q

2

2008Q

3

2008Q

4

2009Q

1

2009Q

2

2009Q

3

2009Q

4e


RoskillSource: IMF, World Bank, CIA World Factsheet, Roskill estimates

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-25.0

-20.0

-15.0

-10.0

-5.0

2007Q

1

2007Q

2

2007Q

3

2007Q

4

2008Q

1

2008Q

2

2008Q

3

2008Q

4

2009Q

1

2009Q

2

2009Q

3

2009Q

4e

GDP Industrial Output

Views from the market, demand seen significantly down on 2008

� “Lower end use demand and customer inventory destocking drove revenue decline” (FMC Corp, Jul 2009)

� “Revenues for the lithium and derivatives segmentBduring first nine months of 2009Bdecrease of 38.7%” (SQM Sep, 2009)


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first nine months of 2009Bdecrease of 38.7%” (SQM Sep, 2009)

� “Demand is off by 30% this year for the entire lithium industry”(Jon Evans, FMC Lithium, Industrial Minerals, Dec 2009)

� “Total lithium demand down 25% in 2009” (SQM, January 2009)

Industrial output in the USA, Europe and Japan (which account for 60% of lithium demand) dropped by 15% between Q2 2008 and Q2 2009

Europe, Japan & USA: Quarterly change in industrial output,

2003-2009 (%)

105

110

115

Europe


RoskillSource: IMF, World Bank, OECD, EuroStatNote: Data re-based, 2005 Q3 = 100

8

80

85

90

95

100

2003

Q1

2003

Q3

2004

Q1

2004

Q3

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

USA

Japan

Chinese industrial output remained positive in 2009 due to large fiscal stimulus package while GDP grew by 8.7% year-on-year

China: Year-on-year change in industrial output, 2006-2009 (%)

15%

20%


RoskillSource: IMF, World Bank, OECD, EuroStat

9

0%

5%

10%

2005

Q3

2005

Q4

2006

Q1

2006

Q2

2006

Q3

2006

Q4

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

Consumption down 15% in 2009, compared to average growth of 6%py between 2000 and 2008

60,000

80,000

100,000

120,000

140,000

World: Consumption of lithium by end-use, 2000-2009 (t LCE)


RoskillSource: Roskill data

10

0

20,000

40,000

60,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Ceramics and glass Batteries Greases

Aluminium Air treatment Continuous casting

Rubber and thermoplastics Pharmaceuticals Other

Why was 2009 so gloomy for lithium demand? Market dominated by industrial applications

World: Consumption of lithium by end-use, 2009

Ceramics and

glass

31%

Other

15%Pharmaceutical

2%Rubber and

thermoplastics

4%


RoskillSource: Roskill data

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Batteries

23%Greases

9%

Aluminium

6%

Air treatment

6%

Continuous

casting

4%

All of the key demand sectors for lithium have been affected, however the outlook for 2010 looks more positive

Sector 2009 observations & outlook

Ceramics & Glass •Construction sector to fall 3.7% in 2009, flat in 2010

Batteries •Li-ion battery production to register 3% growth in 2009, strong growth to return in 2010

Grease •Dip in industrial output hit 2009 demand, 2010 outlook brighter

Aluminium •Capacity shuttered in 2009. Potential for supply crunch in 2010 and plant re-opening


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Aluminium •Capacity shuttered in 2009. Potential for supply crunch in 2010 and plant re-opening

Air-treatment•Industrial and commercial property slump. Recovery in industrial production should boost demand in 2010

Continuous casting •Steel production down 8-9% in 2009, recovery in world output forecast for 2010

Rubber & thermoplastics

•Rubber and plastics demand impacted by dip in industrial output, 2010 likely to show improvement

Pharmaceuticals •Inelastic to recession, pharmaceuticals necessary items

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Consumption of lithium is forecast to increase to 147kt LCE in 2013

+2.4%

-15.0%

+11.0%

+13.4%+7.4%

+7.9%

World: Forecast consumption of lithium, 2008-2013 (t LCE)

90,000

120,000

150,000


RoskillSource: Roskill estimates

13

-

30,000

60,000

2008 2009f 2010f 2011f 2012f 2013f

Ceramics & glass Batteries

Industrial end-uses (grease, aluminiumA) Other (pharmaceuticals, Al-Li alloysA)

ButB it might not be all plain sailing

� Risk of hyper-inflation in developed countries, but more importantly in China

� This could increase interest rates and reduce liquidity in money markets, therefore hitting consumer spending

� Developed countries are also debt-laden, which could mean


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� Developed countries are also debt-laden, which could mean reduced outlay on infrastructure/public works

� Some analysts suspect there is a looming property bubble in China

� Recovery and growth in lithium demand in the short-term is not 100% certain

Significant potential for increased lithium demand from mid-2010s as EV roll-out gains momentum

World: Electric vehicle production and lihtium demand for electric vehicle

batteries, 2008-2020

4

5

6

Battery

vehic

le s

ale

s (

M u

nits

)

80,000

100,000

120,000

140,000

Lith

ium

dem

and for

ele

ctr

ic v

ehic

le

batteries (

t LC

E)

EV sales (Li-ion)

PHEV sales (Li-ion)

HEV sales (Li-ion)


RoskillSource: Roskill dataNote: Vehicle sales data assumes 5% electric vehicle penetration by 2020

(i.e. 5% of total vehicles will have some form of battery power assist)2kg LCE in HEV, 15kg LCE in PHEV and 22kg LCE in EV

15

0

1

2

3

2008

2010

f

2012

f

2014

f

2016

f

2018

f

2020

f

Battery

vehic

le s

ale

s (

M u

nits

)

0

20,000

40,000

60,000

80,000

Lith

ium

dem

and for

ele

ctr

ic v

ehic

le

batteries (

t LC

E)

HEV sales (NiMH)

Lithium demand from vehicles

(10% penetration scenario)

Lithium demand from vehicles

(5% penetration scenario)

Production


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Trade in lithium compounds fell by 43% in 2009, exports of lithium carbonate from Chile were down almost 50%

Major producing countries: Exports of lithium compounds, 2000-2009 (t LCE)

60,000

70,000

80,000

90,000

Lithium chloride


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Source: Global Trade AtlasNotes: Lithium carbonate = Chile, Argentina, USA & China

Lithium hydroxide = Chile, USA, China & RussiaLithium chloride = Chile, Argentina & China Data for 2009 is extrapolated from Jan-Oct/Nov trade data

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0

10,000

20,000

30,000

40,000

50,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009e

Lithium chloride

Lithium hydroxide

Lithium carbonate

Lithium production estimated to have fallen by 25% to 100kt LCE in 2009

80,000

100,000

120,000

140,000

World: Production of lithium by country, 2000-2009e (t LCE)


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Source: The Economics of Lithium, 11th Edition, 2009; Roskill estimates for 2009

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0

20,000

40,000

60,000

80,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009e

Argentina Australia Chile China USA Others

Chinese brine producers continue to debug process routes, progress seen slow & expensive, products often below market specification

� CITIC Guoan:� Calcined separation method: can separate high Mg:Li ratio brine� But, excess hydrochloric acid causing corrosion problems� Produced around 1,100t LCE in 2009 � JV with Chemphys, LOI with Toyota Tsusho for battery-grade Li carbonate

� Qinghai Lithium Co. (Western Mining):� Membrane separation method (Mg:Li ratio taken from 20:1 to 1:2)� Precipitation of salt & membrane plugging causing problems


RoskillSource: Press reports

� Precipitation of salt & membrane plugging causing problems � Produced around 2,000t LCE in 2009

� Qinghai Salt Lake (Qinghai Salt Lake Potash):� Resin absorption method, investigating nanofiltration� High fresh water (600l/1t LCE), resin & power consumption = high cost� Produced around 400t LCE in 2009

� Tibet Mineral (Zabuye):� Freeze-thaw evaporation method� Poor fresh water resources & transport infrastructure = low capacity� Produced around 1,000t LCE in 2009

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Chinese lithium consumption reaches 30,000t LCE in 2009, still reliant on Australian minerals

China: Balance of Chinese lithium market, 2009 (t LCE)

15,00020,00025,00030,00035,00040,000


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Source: Roskill data, Global Trade AtlasNote: Does not include lithium chemicals, metal and derivatives

05,000

10,00015,000

Min

era

l

pro

duction

Min

era

l

import

s

Min

era

l

convers

ion

Brine

pro

duction

Com

pound

import

s

Com

pound

consum

ption

Min

era

l

consum

ption

Dom

estic

sto

cks

Com

pound

export

s

Existing world capacity sufficient to meet demand until mid-2010s, new capacity required to meet EV battery demand from 2014

World: Capacity for the production of lithium compounds, 2008-2013 (t LCE)

0

50,000

100,000

150,000

200,000

250,000


RoskillSource: Roskill estimates

21

0

2008 2009e 2010f 2011f 2012f 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f

New capacity required

Chinese mineral conversion capacity (effective)

Chinese brine capacity (effective)

Existing Americas brine capacity

Compound consumption (5% EV penetration rate by 2020)

Project updates


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2009: the lithium exploration “boom”

� January 2009:

� 7 brine & 14 mineral producers

� 35+ projects in various stages of exploration & feasibility

� January 2010:

� 7 brine & 13 mineral producers (TANCO stopped in 2009)


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� 7 brine & 13 mineral producers (TANCO stopped in 2009)

� 2 projects under construction

� 1 project in feasibility stage

� 4 projects in pre-feasibility stage

� 60+ projects undergoing exploration

� POSCO, Magna, Toyota Tsusho announce investments in lithium explorers

Status of potential new lithium projects at end-2009

Company Location Type Capacity(t LCE)

Start-up (estimated)

Status

Galaxy Resources Mount Cattlin, Australia

& Jiangxi, China

Mineral conversion

17,000 2010 (Mine)

2011 (Plant)

Construction

Feasibility-stage

Sentient Group Rincon, Argentina Brine 1,2001 2010 Construction

Orocobre Olaroz, Argentina Brine 15,000 2012 Feasibility-stage


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Orocobre Olaroz, Argentina Brine 15,000 2012 Feasibility-stage

Canada Lithium Quebec, Canada Mineral conversion

10,000+ 2012 Pre-feasibility stage

Keliber (Nordic Mining) Lantta, Finland Mineral conversion

3,300 2013 Pre-feasibility stage

Simbol Mining California, USA Brine A 2013 Pre-feasibility stage

Western Lithium Nevada, USA Mineral conversion

27,700 2014 Pre-feasibility stage

Source: Company data; Roskill estimatesNote: 1 – Initial capacity of pre-production ponds

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Pricing movements


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Lithium carbonate prices increased only slightly in the 2000s compared to metals, missing the upturn, but avoiding the downturn

World: Quarterly changes in average prices of lithium

carbonate against the IMF metals commodity index, 2003-2009

200

300

400


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Source: Lithium carbonate price = average values of lithium carbonate (US$/kg) FOB USA from USITC;Metal commodity price index = IMF

Note: Re-based, 2003 Q1 = 100

0

100

200

2003

Q1

2003

Q3

2004

Q1

2004

Q3

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

Lithium carbonate price IMF commodity price index (metals)

Lithium prices could falter slightly in 2010, but prices will remain >US$6/kg as long as mineral conversion supply required

6,000

6,500

7,000

7,500

World: Average annual prices for lithium carbonate, 2008-2013 (US$/t)


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4,000

4,500

5,000

5,500

2008 2009 2010f 2011f 2012f 2013f

Source: Roskill estimates

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Industrial Minerals – Minor Metals – Steel Alloys

New reports for 2010:Boron (Q1) – 15% delegate offer

Magnesium Comps (Q1) – 15% delegate offerIodine (Q2)

Soda Ash (Q2)


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Soda Ash (Q2)

Contact:Robert Baylis

Manager – Industrial Minerals Research+44 20 8944 0066

[email protected]

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The lithium market: 2010 review and outlook

Business

q q q q q q q q q q

consumption of lithium

total lithium demand

fmc lithium

forwardlooking statements

industrial applications

industrial production

industrial markets