The usage of lithium in electric car batteries has made the material one of the hottest commodities of the past few years. But after a heady run-up in 2017, investors have been burnt this year by a sell-off in lithium equities.
Shares in the largest producers as well as the smaller miners developing projects have been hit by a stampede for the exit. One could have made a lot more money betting on oil or coal.
This makes it an interesting time for a trio of lithium initial public offerings scheduled to come to the market this year. US chemicals group FMC is set to spin-off its lithium business on the New York Stock Exchange, while China’s two largest producers — Tianqi Lithium and Ganfeng Lithium — are due to list in Hong Kong.
The share sales will be a key test of investors’ views of the lithium market and the outlook for electric vehicles.
Picking winners during large-scale industry transitions is notoriously tricky. While sales of electric cars are growing rapidly, worries about an oversupply of lithium weigh on investors’ minds. The largest producers in Chile — Albemarle and SQM — have pledged to expand supply, while a host of new mines are being developed, spanning Canada to Australia.
Analysts at Morgan Stanley dubbed this dicey period “the long-term pain of new supply” in February, while Macquarie said this month that the industry was “sleepwalking into a tsunami of oversupply”.
But will it be so simple? Lithium projects are difficult to bring to fruition and battery makers require long qualification periods for any new product because carmakers cannot afford to have any problems that may prompt a recall. Companies that have experience processing lithium to the exact specifications required by battery makers may have an advantage.
This is FMC’s bet. Its lithium spin-off Livent is aiming to gain a dominant position in processing lithium hydroxide for the next generation of electric car batteries. “Producers must prove that they can consistently supply product that meets the right physical and chemical properties required by customers,” it said in its prospectus filed this week.
Investors will have to decide how much such expertise is worth, and how easy it will be for others to catch up.
Source: FT.com
