You both present some solid points.
Those following me, may have seen my more cautious posts of late. I think that needs to continue.
Impacting the lithium sector, is EV prices. As I have posted a few times now, as holders we need to be watching growth like a hawk. On that, EV sales appear to be doing okay for now.
However, holders need to be careful that even if sales stay strong, even if lithium prices stay strong, a subdued share price may be in play for some time. A huge amount of money is tied into ETF's and managed funds. If holders take out money they need to sell down their portfolio. If funds are selling down, and shorters know they will be selling down, they can put further downward pressure on pricing. This is across the board and also impacts the lithium sector.
The acceleration of a sell down in pricing may occur due to perceived risk/reward. If people see that the market may stay flat, or go down, or they invested in the last few years and have now made little or a loss return, they now have safer bets. Bonds, deposits etc. have been climbing. They provide options. If downward stock momentum and volatility continues, you may have a transfer. If money in large volumes is removed from the share market, then the price of stocks will not be positive. If EV sales keep up, our falls should be rather limited, due to the possibility of overweight positions if they see that this is the sector to be in.
If you are highly leveraged you should consider your risk profile. Talk to a financial expert that can provide advice. If the market and possible recession drives us down you don't want to get stuck in a tricky situation with your loan.
If you are long and the market/recession drives us all down, this downturn may be hard on our balance sheets, but would actually be very good for us long term. If you look back at my posts during the last lithium downturn, my message was simple, the price destruction will only be of greater benefit to producers on the way up. This is because a downturn will pause and push back projects. This means in the years ahead, the profits will be even greater as current producers will have the market in an even tighter grip. If the consumers of spod/lithium did not try and manipulate pricing in the last down cycle in order to take over (which they failed) Aussie mining companies, the bounce back and pricing power of the producers would have been nothing what it has. If producers are faced with that same manipulation, on the turn up what we saw in the last couple of years will be nothing compared to the next roar higher.
I think many EV companies know this. I thing there will be greater protection now. It would be risky to kill the upcoming supply chain, yet again. Therefore, pricing should be protected to some extent that will keep AKE profitable and encourage the continuation of expansion.
We are currently be valued as if we are selling $3000/t spod and $30,000 chem. Therefore, in theory this pricing level should hold, but anything is possible. As a long who purchased at very low prices, this is not a worry for me, we either go back up over the next few months, or go down substantially over the next few months and then spring back up even harder in about a years time. Should the market push lithium pricing down, pausing expansion and using cashflow to buy explorers on the ultra-cheap could work out very well long term.
As Mark said, the wealthy will do well out of this downturn, their spending power should protect EV sales. EV sales at the moment are fairly limited/protected from those that will be harmed the most in a downturn. Let's watch month to month. Just be warned, if you are not in a strong financial position to ride out the removal of growth in EV sales, it will be too late to take action once the data is available to us. Jan/Feb combined was okay, but not strong enough. March data will be very important.
If you are long, we have been there and done that and know the reward if things turn out pair shaped.
If you can't afford to be long, have high leverage, or may need capital in the short term, please seek financial advice. I don't want to see some of you suffer, the same way I saw others suffer very badly in the last downturn. In the last downturn at one stage GXY had more cash in the bank than its market cap. All intelligence goes out the window, if fear sets in and people are forced to sell into a downmarket.
We are now sitting at cross roads. I am very unsure which way we will head, but we all need to wake up to the reality that risk may be on.
Please DYOR.
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