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Market bearish on lithium price, bullish on electric vehicle outlook

London — The outlook for the global lithium market is decidedly bearish this week, although views on electric vehicle growth remained bullish, according to a variety of industry sources.

During events at the annual LME Week annual gathering in London -- as well as on its sidelines -- conversation centered around one main theme: the growing global electrification trend.

Although there has been a slowdown in EV sales in the world's number one consumer China, participants remained bullish the overall trend toward electrification; with 2025 widely touted as the magic number for sales to really take-off globally and market penetration to deepen.

"The transition to EVs is irreversible," Jose Lazuen, analyst for EVs, battery and supply chain, told the audience at the consultancy's roadshow Tuesday. This was echoed industry-wide.

Automakers continue to pump billions of dollars in to the transition to electric powertrains in a bid to comply with mounting government policy to lower global carbon emissions.

"There's no turning back now. Too much has been thrown at EVs. Too much is at risk," said one senior banking source in conversation with S&P Global Platts.

Roskill's Lazuen said that one hurdle for market to overcome in order to become mainstream is the cost of battery packs, that have not come down as quickly as forecast.

In his view sub-$100/kWh won't be possible until 2025, slowing down the rate of adoption. This is widely seen as a benchmark price for parity with conventional internal-combustion engines.

The cost of buying an EV remains a sticking point for many.

"I want to own an EV, I just can't justify the initial outlay yet," said one market source.

In a report published earlier in 2019 Bernstein Investment Research said that it sees cost parity coming around 2022-23.

"Rapid advances in battery technology has improved EV economics, demand has accelerated, and incumbents are jumping onboard," the report said.

BHP agreed that costs need to be reduced to around $100/kWh from the current $150-180/kWh.

Global sales of electric vehicles fell for the second straight month in August, with a 9% year-on-year decline led by China and the US, S&P Global Platts Analytics said in its most recent monthly EV Essentials report.

Talking to Platts Thursday Zane McDonald, senior transportation technology analyst at S&P Global Platts Analytics, said: "Battery cost declines are clearly to the benefit to plug-in EVs. Cost competitiveness with internal combustion engine vehicles is however a complex issue, with factors like oil product price, vehicle resale value, maintenance costs, and supportive policy each playing an important role. The confluence of these factors mean that the timeline of EV price parity, and thus EV sales, will vary regionally."

However, not everyone agreed that pushing prices down was the way forward.

Last week another source said that automakers were getting it wrong strategically by trying to cut costs to the bone in a quest to get as many EVs on the road as possible.

"I have a car, it wasn't cheap, but the battery is great," the source said. "It can get me 350 km [219 miles] on one charge...I only drive more than that in one go twice a year. The batteries work, if they keep trying to pressure prices lower, the market won't." Roskill's Lazuen believes that is the way the market will go over the next five-years, with big automakers "squeezing" battery cell makers to get prices lower and lower.

On the subject of cost in the supply chain, the outlook for lithium, a key ingredient in EV batteries, remained incredibly bearish this week.

Daniel Jimenez, a partner at consultancy iLi Markets told the audience at a London Metal Exchange presentation Thursday morning that "these are rough times [and] will continue to get worse [for the lithium price]." He suggested that it is not so much a demand issue, but instead one of increasing supply in an already heavily overstocked market. He added that is difficult to predict when the rot will stop.

For much of 2019, the lithium price has been plunging because of a perceived supply glut. However, opinion is divided on whether that stockpile is battery grade or a lesser quality material.

S&P Global Platts assessed lithium carbonate at $9,500/mt CIF North Asia last Friday, down from $9,900/mt on October 18, while the assessment for lithium hydroxide fell $200/mt to $11,500/mt, same basis.

Producer Ablemarle, another LME lithium committee member, said in a statement it expects lithium prices to keep falling in 2020.

The panel on Thursday morning all suggested that the carbonate price could be trading around $7,000/mt, or even lower, one year from now.

Still further out, much further out, nearly the entire value chain agreed that as EV demand continues to ramp up, and raw materials prices fall, there will be another boom in the lithium price basis a lack of investment on the supply-side.

"Miners need to look further down the road to 2030," said Jimenez, suggesting another move higher could be on the cards then.

On the subject of localized supply-chains he said that until the automakers start investing in the mine side of the business it is unlikely the business will take off in Europe.

"I don't [yet] see any [auto] investment on the mining side," Jimenez said.

"Automakers want to de-risk and shorten their supply chain, such as taking on the responsibility of sourcing battery raw materials in-house. This comes along with [the need for] having more regional sourcing and exploring domestic battery metals resources," Vincent Ledoux Pedailles, an executive director at European developer Infinity Lithium, told S&P Global Platts on the sidelines of the industry gathering this week.

The European Battery Alliance has called for investment in the nascent European battery value chain -- from extraction of raw materials all the way through to recycling at the other end of the value chain -- in order to build the industry and create job security.

"We are trying to get the show on the road in Europe by working across the European battery value chain," EBA's program director for industry, Thore Sekkenes, said in a recent interview with Platts.

-- Ben Kilbey, ben.kilbey@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com