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Electric car growth not enough to offset rising lithium supply from Chile

Concerns grew stronger over a trade war between the U.S. and China after sources revealed that President Donald Trump wants to impose the harshest tariffs on steel and aluminum imports.

The U.S. Department of Commerce proposed import tariffs of up to 53% on steel and 23.6% on aluminum, with recent reports suggesting that Trump favors a global tariff of 24% on steel imports and a blanket 10% duty on all aluminum imports.

However, political analysts and economists speculate that Trump will take a targeted approach to tariffs. The president is also under pressure from Republicans to refrain from measures that may disrupt supply chains amid fears of retaliation from other countries.

Liu He, the top economic adviser to Chinese President Xi Jinping, is expected to visit the U.S. on Feb. 27 with a possible mandate to manage increasing trade tensions between the two governments.

Xi is expected to maintain his authority years after his second term expires, as China's Communist Party has proposed eliminating a two-term limit on the presidency.

Starting the week, Singapore-traded iron ore futures for March delivery rose to the highest level since April 2017, increasing by up to 1.5% to US$79.15 per tonne, after steel mills in China's Tangshan city were ordered to extend winter production cuts until November from a previous target of March.

The announcement sent Shanghai-traded steel reinforcement bar for May delivery up as much as 3.8% to 4,047 Chinese yuan per tonne, the highest since early December 2017.

Meanwhile, the U.K.'s Labor Party leader, Jeremy Corbyn, supported plans to have the country in a permanent customs union with the EU following Brexit. Clearing his approach to Brexit, Corbyn said the U.K. should have a meaningful say in the post-Brexit trade negotiations.

Global stocks began the week higher with the U.S. dollar taking a back seat on expectations that Federal Reserve Chair Jerome Powell will take a steady course on tightening the monetary policy. Powell is set to testify before Congress on Feb. 27. Since gold prices are highly sensitive to increasing U.S. interest rates, Powell's debut congressional testimony will be closely monitored for clues on the outlook for U.S. monetary policy.

Price ring

The greenback edged up modestly Feb. 23, pressuring most base metals with copper, nickel, zinc and lead down 0.9%, 0.6%, 0.7% and 4.4%, respectively, closing the week at US$7,127/t, US$13,787/t, US$3,572/t and US$2,524/t.

Aluminum was up 0.2% to US$2,194/t as some Chinese aluminum smelters were already manufacturing more quantities of the metal even as output was expected to continue at a reduced level until mid-March.

In the precious metals segment, gold prices edged lower by 1.4% to US$1,329/oz, as Fedspeak downplayed the risk of inflationary pressures.

Bulk commodities closed the week stronger, with iron ore up 1.3% at US$75.5/t, while thermal coal closed up 2.1% to US$98.4/t.

Talking points

Morgan Stanley analysts expect lithium prices to slide 45% by 2021 as the expected growth in electric vehicles will not be enough to offset rising supply from Chile. New and planned expansion projects in the country will "threaten to add" about 500,000 tonnes per year to the worldwide supply by 2025.

Major lithium producers Sociedad Quimica y Minera de Chile SA and Albemarle Corp., which have secured deals with Chilean regulators to expand their output capacity in the country, will alone add a further 200,000 tonnes per year by 2025, widening Chile's share of the market to a third of global supply.

"It would take much higher EV penetration rates to offset these surpluses and balance the market," the bank said, noting that electric vehicles would have to account for 31% of global sales in 2025 from less than 2% at present to "clear the market."

The bank sees lithium carbonate prices sinking from US$13,375/t to US$7,332/t by 2021 before falling further to US$7,030/t, its marginal cost of production.


Worthington Industries Inc. extended an existing revolving credit facility until Feb. 16, 2023. The five-year, US$500 million facility was set to mature April 23, 2020.

First Quantum Minerals Ltd. increased the offering amount of its senior notes due 2024 and 2026 to US$1.85 billion from US$1.5 billion.

Fortescue Metals Group Ltd. secured a US$1.40 billion term loan facility from a group of Chinese, Australian and European financial institutions.

Tahoe Resources Inc. revised the terms of its revolving credit facility, which now consists of a US$175 million revolving credit facility and a US$25 million accordion feature maturing July 19, 2021.

Klondex Mines Ltd. upsized its credit facilities to US$45 million. The increase includes an addition of US$5 million in the revolving credit facility to US$40 million and an additional working capital tranche of US$5 million.