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Morningstar | Livent Will Benefit From Low-Cost Lithium Capacity Expansions as EV Adoption Increases

Spun out of FMC in October 2018, Livent is a pure-play lithium producer, ranking in the top five in lithium production globally. Livent's lithium carbonate production in Argentina is among the world's lowest-cost lithium sources.As electric vehicle adoption increases, we expect high-double-digit annual growth for global lithium demand. Livent is looking to expand its Argentine brine-based lithium production capacity from 21,000 metric tons in 2018 to over 60,000 metric tons by 2025 on a lithium carbonate equivalent basis. Furthermore, the company plans to increase its lithium hydroxide capacity from 18,500 metric tons in 2018 to at least 30,000 metric tons by 2025.Lithium carbonate is produced by pumping brine out of the ground (primarily in South America) or via pegmatite mining that produces spodumene, which is later converted to lithium carbonate. Lithium hydroxide can be produced either from the conversion of carbonate or directly from spodumene. Producing hydroxide from spodumene typically costs less than starting from carbonate for fully integrated producers and can also be lower cost for nonintegrated producers, depending on spodumene prices.While we are bullish on lithium demand, we are somewhat skeptical of Livent’s strategy of focusing on hydroxide production from its brine resources. Lithium hydroxide is a higher-grade and higher-priced product, often produced as a derivative of lithium carbonate. While management believes that a focus on the production of hydroxide will shield the company from volatility in carbonate pricing, we contend that hydroxide pricing premiums will normalize to the cost of conversion as competitors enter the market. Further, as more hydroxide is produced from spodumene, we forecast that Livent's position on the lithium hydroxide cost curve will rise to a middle-cost position, albeit safely below marginal-cost producers.However, we are in favor of Livent’s plans to expand its low-cost carbonate production in Argentina. The company's cost advantage there stems from its unique brine assets that provide a high concentration of lithium. This unique geology represents a cost advantage that will prove durable in the long run.