ASX Today, page-28492

The trouble with lithium stocks is no one knows the price of lithium or which way it’s headed

Many investors are wondering why their Lithium stock price has gone down, in many cased halved from all time highs, yet the World is transitioning to EVs at an astonishing rate and the experts are saying there won’t be enough mined lithium to keep up.

Short answer is because Chinese Lithium Carbonate prices have dropped over 30%, less so outside China & for SP6 & Hydroxide

Yes there are short sellers, manipulators... but the fact is Chinese prices have dropped significantly so have Lithium shares

I personally think this is orchestrated by vested interests - Chinese, short sellers, GS etc, and isn’t sustainable.

Unfortunately the Lithium market is full of contradictions, secret pricing, etc etc, which all leads to a non transparent market.

For starters, most lithium is mined in S America or Australia, yet 80% is processed in China and China sells the final product to Battery manufacturers some of which are auto OEMs but again mostly in China. Even Battery manufacturers in Korea purchase much of their lithium salts from China because ~ 80% is converted there.

I say full of contradictions because so many parts of the market are not disclosed.

We don’t know the converters stock levels, mainly because they are held in China where data is unreliable

We don’t know the pricing, because most sales are under contract, which are subject to non disclosure clauses

Lithium futures contracts seem to influence the market, yet they are tiny - only about 2000 tonnes - less then 0.001% of the market

Then we have commentators like GS predicting doom & gloom mainly for their own purposes. This is in contrast to the number of giga factories being built around the World (do you really think they’d invest that much $$ if they believed they’d be idle which is what GS suggest). Of course if you listen to the experts, Benchmark, Fast Markets etc, they tell a totally different story to GS and they back their thesis up with facts.

What we do know is most of the legacy contracts have expired, up until recently many converters were paying for raw materials prices set when Lithium prices were at their lows. The recent run up in pricing didn’t cost these Chinese converters anywhere near the reported spot pricing because of these legacy prices and for the newer producers the lag in the spot vs contract pricing.

This current Q they are paying the most they’ve ever paid for raw materials despite spot pricing dropping dramatically. PLS said in November based on current pricing they’d receive $6300/t for this current Q. By December when their contract prices were reset, the Carbonate prices had dropped 10-15% so I’d assume a similar drop in this Qs prices, but still very high.

Undoubtedly there has been a concerted effort to talk down Lithium prices, end of March the June Q pricing will be reset, significantly below the current Q. When you look at the savings to be made because of the drop in pricing, it is not hard to understand why a concerted effort is underway to suppress prices.

In the last year we’ve had some laughable comments made by the likes of GS (who have been buying up Lithium stocks despite their rhetoric), BYD, CATL etc. All these non existent mines in Africa about to flood supply, Sodium Ion batteries, which IMO may replace lead acid batteries or have a use in ESS. CATL giving discounts to smaller Chinese auto manufacturers which may well be why Carbonate (used in LFP batteries) prices have dropped in comparison to hydroxide prices.

The fact remains there is a forecast supply deficit, the likes of GS just treat it like any other commodity - iron ore, copper etc. But Lithium is a chemical, subject to long qualification periods, high rejection rates & all sorts of other production problems other non chemical commodities don’t have.

In the 18 months to last December Lithium prices really took off, SP6 going from $600 to $8000/t

Lithium stocks didn’t rise to the same extent, many have gone no where over the last 15 months

IMO the market was wary of the Lithium price explosion & expected it to be short lived

With this current pull back I believe we are near the bottom. Once the bottom is established and prices start going back up, I think the market will reassess the Lithium price outlook and consider that bottom a base line price. Presently companies are not priced on current $5000ish SP6 prices, but probably sub $1000 prices.

When China is producing from Lepidolite, $1000 prices are just not going to happen - they’d be making a loss

Even if a base is set at a low $3000 (I personally think it’ll be above $4000/t) I think the market will rerate Lithium stocks on that new base line price.

It took the market a while to realise Iron Ore was no longer going to be sold at $20-30/t, it will soon come to the same realisation with Lithium.