Commentary from nextinvestors.com part 14 Mar 2023 09:46
A wild ride in the lithium space
The lithium space was making headlines this week.
The lithium bears landed a few punches early on, but ultimately it looks like the bulls came out on top.
A rollercoaster of emotions and test of resolve for lithium investors.
On Monday, Chinese battery makers were rumoured to be offering discounts to carmakers, accelerating weakness in lithium prices.
After hitting record highs in December, lithium prices have pulled back in the new year.
Some analysts were saying they anticipate (at least short-term) prices to drop a further 25% as lithium supply outpaces demand...
This negative news was offset in the same week by news that “An investigation into illegal mining in China’s lithium hub could cut global supply of the battery raw material by 13% this month, analysts said on Monday, potentially supporting prices that have plunged from record highs.”
According to Reuters “The city of Yichun in southern China, which produces about 29% of the country’s lithium salt and is known as Asia’s lithium capital, said late on Friday it was cracking down on criminal activity, such as unlicensed and environmentally-damaging mining.”
Later in the week we saw lithium major Albemarle announce plans to expand its lithium hydroxide processing capacity in WA, with the company looking to establish direct supply routes to European buyers.
The multi-billion dollar lithium producer thinks supply chains are still fractured and it is pouring capital into fixing them… something you wouldn't expect to see if Albemarle believed that lithium supply really does outweigh demand.
More support for a lithium bull case came later in the week at Tesla’s annual battery day, where CEO Elon Musk laid out what he thinks is needed for the world to transition to a “sustainable future”.
Musk outlined his “Master Plan 3” that would see $10 trillion spent globally to eliminate fossil fuels and bring about a sustainable future powered by renewable energy. This will include sourcing and securing the critical raw materials needed to build out battery supply chains.
Musk said, “As we improve the energy density of batteries, you'll see all transportation go fully electric, with the exception of rockets”.
Commenting on Musk’s plan, Benchmark Minerals’ Simon Moores noted that “scaling specialty chemical supply – especially lithium – is probably the hardest thing to do in the battery supply chain”.
For us, a key takeaway was that Musk didn't just focus on electric vehicle (EV) markets but instead included energy storage markets too. Until now much of the lithium demand story has centred on EV batteries, but it is so much bigger than that. The reality is that a transition to intermittent renewable energy sources, like wind and solar, will require balancing energy supply when the wind isn't blowing or the sun isn't shining.
One of the best ways to do this is with massive battery stacks built alongside renewable power.
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