Running discussion on SP, page-9324

hi @ericson

My thoughts on vertical integration are that there would be very little advantage for a Chinese acquirer to build any downstream capacity in country. The Chinese downstream processors are cartels which profit from the sale of LCE. These are quasi-statal companies that have both commercial interests to maintain but ultimately serve the demands of the Central Politburo of the Communist Party of China. If the Politburo says they want to electrify the transport infrastructure in China, the companies comply. If the Politburo wants more Chinese influence in Africa in the technology metals sphere or any other sphere then the companies comply. The objectives of these companies does not necessarily align to the same objectives of the equity investors here in Australia on the ASX. Their time frames many not be as urgent as those of equity investors who want returns in time frames measured in years. The long game of these Chinese companies is really up for speculation. Given that an ever increasing number of new sources of mine supply are emerging due to the speculative interest in this sector coming from western equity markets (which the Chinese are currently partially fuelling) the Chinese downstream producers won't be in a rush to over invest in mine development IMO. They might simply be happy to put their feet on excess potential mine supply (without developing it) so that they can control the prices paid for new mine supply into the future. If they can prevent western competitors from becoming involved in the supply chain by cheaply putting their feet on resources they can squeeze down the price paid to existing mines and mines nearing production and confine future mine supply to the level they need to maintain their cartel status and meet the demands of their Politburo masters. The strategy could be to own but delay the development of new mines. The market for lithium concentrate is not a well developed market. It is currently a not a very big market in comparison to traditional metals markets. There is no spot market like you have for other more developed metal markets. There are no futures markets (that I know of) that help price the commodity. Most lithium concentrate sales are mediated through very opaque off-take agreements where the price paid for the concentrate is linked to the price of LCE. Once the Chinese cartels finish satisfying the short term supply short fall for LCE they will be able to drive the price of LCE down and consequently the price of LiO concentrate down, squeezing the margins of the miners. Lowering the price of LCE would fit with the plan to electrify the transport infrastructure in China because the lower the price of LCE the cheaper the batteries, the faster the uptake of the technology. The cartels can still increase their profit with falling LCE prices because as prices fall volumes of battery sales increase (to compensate) and the prices paid under their off-take agreements for raw mine supply falls as they have cleverly linked concentrate prices to LCE prices. They are cartels after all. I don't think you can apply western commercial motivations to these Chinese companies so one must be careful with making assumptions of how they will behave. They may not act as predictably as conventional logic would dictate. Esh