INDUSTRY BULLETIN: Lithium market facing supply tightness and higher prices

October 23, 2017

Rapidly increasing demand for lithium, fueled by the accelerating transition to electric vehicle (“EV”) technology, continues to pressure suppliers to keep pace, while driving up prices for lithium chemicals.

As recently reported in the Nikkei Asian Review, spot prices for lithium in China have climbed 30% since the start of the year with lithium carbonate, the “bellwether for lithium trades,” reportedly trading around $23,000 USD: 18% higher than as seen in late August and more than double where they were a year ago.

Chinese lithium demand, currently ~40% of the global market, continues to increase, accelerated by government policy initiatives promoting accelerated adoption of EVs and renewable energy requiring an energy storage solution, as discussed in Avalon’s October 10, 2017, Industry Bulletin. It is expected that lithium carbonate demand in China will climb 30-50%, reaching 80,000 to 90,000 tonnes this year according to market research company Fuji Keizai.

The Nikkei Review goes on to report that this trend is not expected to slow in the near future, as most cathode material manufacturers purchase under short term (six-month to one-year) contracts, and with many new entrants looking to start operations to participate in this growing market, the trend toward higher prices will continue. It is noted that some manufacturers are already anticipating 10% price hikes next year. Supply bottlenecks are further exacerbating the issue. For example, heavy rains in Chile and Argentina in May and June this year slowed lithium production from some brine operations using evaporation ponds, cutting yields.

At the recent Benchmark Cathodes 2017 Conference, attended by Pierre Neatby, Avalon’s Vice President, Sales & Marketing, there was consensus among the attendees that the most pressing challenge facing the lithium ion battery industry is the financing of new critical materials projects in time to meet the growing demand.

If the global shift to EVs is going to happen on the timelines set by global automakers and expected by government policymakers, it will require substantial timely investment in the critical materials supply chain to make this a reality. Michael Vaknin of J.P. Morgan Private Bank, writing for Business Insider, notes that major investment in new lithium supply is only likely to occur in reaction to a major price spike (similar to the experience with other commodities), not solely in anticipation of it. Conceivably, the market is now seeing the beginning of such a price spike.

Avalon’s advanced Separation Rapids Lithium Project is well-positioned to participate in the creation of this new lithium battery materials supply chain, with the ability to sustainably produce the high-quality lithium products needed to fuel the energy storage revolution.

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About Avalon Advanced Materials Inc. (TSX: AVL & OTCQX: AVLNF)

Avalon Advanced Materials Inc. is a Canadian mineral development company focused on technology metals and minerals. The Company has three advanced stage projects, all 100%-owned, providing investors with exposure to lithium, tin and indium, as well as rare earth elements, tantalum, niobium, and zirconium. Avalon is currently focusing on its Separation Rapids Lithium Project, Kenora, ON and its East Kemptville Tin-Indium Project, Yarmouth, NS. Social responsibility and environmental stewardship are corporate cornerstones.