There's basically 4 potential spot pricing phases that can exist.
1. Prices are deep into the cost curve as they are currently
2. Prices are towards the right-hand side of the cost curve. A few operations are marginal, most make money
3. Demand is aligned to supply by bring in high-priced quick to market supply like DSO (and lower-grade lepidolite from Africa/China)
4. Demand is sufficiently high that it can't be met without price rationing
Currently the market is pricing lithium stocks as if pricing phase 1 above is going to continue for an extended period and phases 3 and 4 have a low, if not zero chance of occurring. The current increase in supply is however not from lots of new projects choosing to start given the current spot prices. Its from a lot of historical project FID decisions, many from 2022 that are now coming onstream and ramping up to the full capacity you would expect given the deposit size. In the hard rock space this includes Sigma's expansion, Mt Holland, Kathleen Valley and Goulamina. The last 3 of these are all on 150Mt plus size deposits so each individually represents a world-scale project. New project FID's have been few and far between across 2023, 2024 and YTD 2025 but demand has been met through massive historical FID decisions. Comparatively soon this is going to create a major problem for the sector, but the pricing implications of this problem are not being reflected in current share prices.
The absence of new projects across 2023 and 2024 means that these projects are not coming online in 2025 and 2026 to continue the supply growth, but demand growth is continuing. This could well create the situation whereby prices need to shift to phase 3 or phase 4 noted above. If they do, there could be the return of $2,000-$3,000 Spod as these prices would allow DSO to restart. If this doesn't generate enough supply, they could shift to phase 4 and stay there for the couple of years time it would take new mines to start and ramp up. If you are operating during this period, shareholders will have a couple of years of very strong profits.
GT1 is clearly looking to be operation during this lithium 3.0 cycle, rather than using the higher prices of lithium 3.0 to get operational, but it won't be easy. If demand shortages do eventuate needing rationing prices, we could again see US$5,000+ spod. If you sell even 100kt into that market is $500m in revenue, but the current share prices are putting a near zero probability on this occurring.
Add to My Watchlist
What is My Watchlist?
