SQM is the gorilla in the cage, by far the largest partner in the Attacama brine and western supply oligopoly. It is currently expanding to meet demand growth in lithium and certainly can continue to expand more. However, I believe there are impediments to continued very large expansions of lithium production continuing.
Strategic... world off-take users of lithium have been bullied by SQM oligopoly production and pricing behaviour in the past and already feel like they have very little supply security or pricing control. Users would be very keen to see supply to become more diverse and less concentrated for security, supply and pricing control. Within the framework a few more suppliers into a growing market I do not believe that SQM will try to crash the price and force new low-cost entrants out. Oligopoly pricing theory says that SQM will allow a few more players in while remaining the largest supplier and at the same time keeping prices up. We see the same thing in potash where Potash Corp is acting as the worlds "swing" supplier and currently reducing production to limit supply and keep prices up. This is the sensible approach for the largest player in an oligopoly market, to maximise profits in the short-run and long-run, especially when future demand growth is predicted to take up additional production growth anyway.
Hydro-geological... The potash production comes from lower grade lithium brine areas. Although this brine could be further evapourated and refined into lith-carb the brine is recirculated adding vital fluids back into the system. I do not know exact hydo-balances of-course but I would think that large volumes of water are lost to current production rates through evapouration and an important part of the operating license and sustainability of the brine involves not sucking out too much brine too quickly.
Potash, by-product or driver?.... On historical prices potash has only ever been a by-product and would not sustain operations without lithuium revenue. Although potash prices are now significantly higher, I think that to flood the lithium market and crash the lithium price would render the whole operation marginal. Sure brine produces lithium at very low cost after high potash credits but who wants to sell lithium for nothing?
I dont believe anyone "holds off" the market as such. Lithium is a small market but growing strongly without electric vehicles. Low cost producers are looking for opportunities to fill the demand growth in a sensible fashion as with any specialty market. Demand from hybrid cars should see demand grow sufficiently to accept a few new players and expansions from encumbents. China has very lofty goals for hybrid and electric vehicle take-up, both private and public transport (buses etc). China has a much more serious oil importing and energy security problem than the US and I think they will keep all their own production for internal use. Further, the recent history of Chinese shenanagins with export restrictions, export quotas, taxes etc to preserve vital metals for internal consumption means western companies cannot risk relying on chinese lithium supplies (in addition to the rumours that China is struggling with production quality from very high Mg:Li ratio brines). The REE market has shown how far China has come in restricting production of finite raw metals to preserve resources for the long-term benefit of the people.
Bottom line is I believe that there is room currently for another two producers, and for expansions and more when lithium battery technology becomes compelling in the equation of oil cost, greenhouse emmissions, energy security concerns etc. Strategiucally the large lithium consumers will see grub-staking the development of a high-quality, low-cost, long-life brine in Argentina as cheap insurance against future supply tightness and much higher lithium prices. When SQM says "trust us, we can meet your requirements" I think the answer will be thanks but no thanks.
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Hot Copper ORE thread 13/7/09
