Joe Lowry Talks Lithium Supply, Demand and Market Fundamentals

After more than two decades working for one of the "Big 3" lithium companies in senior positions in the US, Japan and China, Mr. Joe Lowry, also known as Mr. Lithium, formed Global Lithium LLC — an advisory firm that works with lithium producers, users, investors, hedge funds and governments on four continents. Mr. Lowry has an extensive network of contacts with lithium suppliers and users. Considered one of the world's leading experts in lithium supply and markets, his recent articles on the lithium market can be found on his LinkedIn page: https://www.linkedin.com/in/jplowry

Joe Lowry's Twitter: @globallithium
Joe Lowry's email: joe.lowry@lithiumllc.com

The following interview was conducted by phone and email in the week ended June 20, 2015. The interviewer, Peter Epstein, CFA, MBA, of EpsteinResearch.com has no prior or existing relationship with any company listed herein. Peter Epstein has no prior or existing relationship with Joe Lowry or any of his business activities. He thanks "Mr. Lithium" for his time as he has a very busy schedule.

PE: Please provide readers with an overview of the supply side of the lithium market, including where we are in the cycle.

JL: We should be in a period of significant investment, bringing large capacity additions; however several factors have conspired to limit investment. They include: the political situation in Argentina and Chile, slower than anticipated development of the EV market, uncertainty caused by the delay in start-up of Rockwood's expansion in Chile and a slow start-up by Orocobre, the failure and ultimate bankruptcy of Canada Lithium/RB Energy, etc. The lithium market has entered a shortage period that will last at least a year and possibly longer depending on how the Rockwood expansion and Orocobre ramp-up play out.

PE: What are your thoughts on demand?

JL: Demand growth is led by batteries; however the base demand from grease, glass, and other industries continues to be stable, growing at GDP rates.

PE: How important is the growing use of lithium for alloys such as lithium/aluminum for key components of airplanes, cars and the like?

JL: Overall this demand is not significant in terms of lithium carbonate equivalent "LCE" demand; however this segment is high value so it will be more significant to a large metal producer such as Ganfeng.

PE: How important on a global scale is lithium?

JL: If you look at the person on your left and on your right, odds are over 99% they are carrying a cell phone or another personal electronic item that contains lithium. Can the world survive without lithium? - yes. Does it want to? - no.

PE: Regarding the Lithium Triangle of Argentina, Chile and Bolivia, is there risk of disruption of supply?

JL: The government of Chile has made it difficult for both Rockwood and SQM to expand going back several years via the permitting process required to expand output. Argentina is a political mess that has investors reticent to make large bets on projects like Lithium Americas Corp's Cauchari-Olaroz's and Galaxy Resources' Sal de Vida. Bolivia is even worse with an unstable government and limited infrastructure to support development of lithium reserves.

PE: What properties of lithium, the lightest metal, make it important in many applications?

JL: For batteries, the electrochemical properties of lithium give it a great power to weight ratio and a reasonable number of recharge cycles at an affordable cost. For other applications, lithium provides a wide range of benefits depending on the market - a powerful flux in glass, the enabler of grease to be used under a wide range of operating conditions, the catalyst for polymer and pharma reactions.

PE: Have there been any changes in lithium prices over the last six to 12 months?

JL: There is already a significant tightness in the upstream market (both carbonate and hydroxide) that will build over the next 24 months and result in a significant price rise. Prices have jumped substantially in the past year. Besides the delayed expansion at Rockwood and the slow start-up at Orocobre, another key factor is the limited output by SQM who seems to have production issues. They are not exporting in chemical form anywhere near the capacity they claim. They have been shorting customers in Asia on and off since 2014. The lithium chloride brine they ship to China as a raw material should not be counted in their LCE production when comparing their production vs. their stated capacity. Over the past 6 months it has become clear that supply is short which has caused the price to move up rather steeply unless annual contracts were involved. Suppliers are likely to go back to quarterly pricing reviews.

PE: Has the use of lithium in batteries and large-scale energy storage made it the go-to metal?

JL: The term energy storage has many facets. Lithium will remain dominant in consumer electronics and transportation for the foreseeable future. Grid storage is still playing out - lithium certainly has a place but there are more competing technologies in that area. I see no short or medium term risk to lithium. Battery/Energy technologies take a long time to develop and be adopted.

PE: How important is grade? In sectors such as graphite, grade is widely considered of paramount importance.

JL: Grade is important in certain areas but the term, "battery grade" is a marketing term over used by junior minors and analysts that don't really understand the industry - the batteries currently going into Tesla's cars are not made with, "battery grade" material as originally defined by their largest lithium supplier. There are certain specifications the lithium raw material must have but "battery grade" as a generic term creates more confusion than anything else. The "premium" many analysts discuss for "battery grade" lithium carbonate is largely a myth.

PE: What are the differences between hard-rock mining of lithium and lithium brines? Does each approach end up with roughly the same ending product?

JL: Hard rock mining is generally more energy intensive and thus higher cost. On the other hand the capital cost for hard rock projects is generally lower, production cycle times are faster so there are trade-offs. Both lithium sources can ultimately provide world class product although there are certain differences in impurities.

PE: I recognize this is a complicated question, but what can you say about China's role in the lithium market?

JL: China is the largest lithium market and has the largest capacity for lithium chemical manufacture. While the "big 3¿ waffled; China added capacity despite having the highest cost structure. Chinese companies have lower ROI criteria and, generally speaking, more appetite for risk which has more than compensated for their higher cost structure.

PE: Thank you again for your time and expert commentary on the lithium industry.

Joe Lowry Talks Lithium Supply, Demand and Market Fundamentals from Lithium Investing News

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