Thsts a tough question but I'm glad you asked.
Right now, for whatever reason the market doesn't see any difference between lithium companies.
The market incorrectly or perhaps unwittingly do not differentiate between spodumene, sedimentary or brine despite the fact the cost structures are different both Capex and Opex.
The market also incorrect or perhaps unwittingly do not different between different markets - all are priced according to data coming from China, despite companies specific market are someplace else eg Europe or North America, and despite long-term offtakes already secured with price floors and price ceilings ranging from 3-5yrs from production and extendable by a further 2-5yrs (10yrs the longest thus far).
So all things considered, seem it doesn't matter where your company is operating or what you are doing, if you are in the lithium game, as the market just price everything according to Chinese data. You see where the risk here right?
So this means Chinese entities have market control or power in shaping the current market to gain future competitive advantage, thanks largely to China's economies of scale and pricing controls. There is no doubt Western entities, Govt and companies are splurging right now to catch up to China... but make no mistake, Chinese entities would not let go of their market share without a fight.
Right.. now those facts are out of the way.. next set of facts before I answer your question...
In the short term, there was risk of short squeeze (this week) and we were finally looking at share price appreciation. We were looking for lithium price bottom. We saw that first thing Monday when ASX opened... this was first suspected Wednesday last week, the likes of Ganfeng and Tianqi market cap getting a leg up and all else followed... but this soon turned the other way when Chinese entities did their thing and prevented the reversal came Monday noon - more warehouses were opened in China from 2 to 5, so they can consume more for less and keep this farce of too much supply not enough demand. So now we are looking at a new price bottom... but make no mistake, we are basically there already... it really just depends how low China is willing to go and many of their companies are already selling below their production cost! So we know it's now artificially low lithium price.
So where do I see Li price over 6-12months?
So many things can happen to change my outlook today so I hesitate to give an opinion but I do have one.
Western entities/powers (these are usually companies not Govt but supported by Govts) might finally agree with each other and come up with separate pricing for lithium as a commodity outside Chinese control, much like what happened with iron ore and copper.
China is very good at using "market forces" against the West when in fact they control price (at least right now) which can drown mining companies especially the more costly ones (capex) to quit the game before even reaching production. They are doing this for EVs as well (more visible) or maybe even more pronounced with steel, which they bike so much then dump them on other markets. That's what they are trying to do with batteries right now while they still have market control - build heaps, build cheap, overlook demand, build fast then dump in other markets.
I think China will be China. But I think they are shooting themselves on the foot as their quest to dominate "green transition" will actually speed up the process of de-coupling. Whoops, sorry I meant "de-risking".
North America in particular, will have its own lithium battery market. That's a "will" there is no doubt any longer, with clarifications on IRA and Net Zero policies to shut China out - they wouldn't be able to dumb because of in port duties will make their products expensive in the US, doesn't matter is it's raw materials, batteries, EVs or professional services. North America (NAFTA) is already setup for a circular, internal battery supply and value chain. Companies such as AZL will benefit. This is also why I think ExxonMobil has gone out in public to declare they are in the race to eventually dominate lithium brine market by 2030.
2023/2024 are just bumps on the road of cyclical nature. There is always a 2-3 years up and down in the market, commodities volatility. It was made even more pronounced and complicated by Covid as it impacted supply chains and, well, professional services - it was for a time difficult to find workers let alone ship things from China to US... we aren't even back to normal yet but supply chain disruption risks have eased... still expensive though.
By 2025/2026 will be the start of the North American revival In manufacturing- not only are we projecting better aggregate economic environment but specifically for lithium when battery plants and factories will begin operating and create the internal demand for lithium.
Europe will soon follow, as they often do but a tad slower than America. China will still be China.
My current forecast:
- USD20-25k per tonne of LCE in 6-12months
- USD30-50k per tonne from 2026 onwards
NB. Although I follow Mckinsley and Goldman Sachs, they can't forecast for shit. Their economists appears to have been replaced by young Millennials who doesn't seem to appreciate experience over text book knowledge - they lap up everything "official Chinese data" dishes out much like the IMF does so I don't trust their forecasting past 6 months. S&P Global and BMI Benchmark are better sources of data... but the best data is going out there and seeing things for yourself.
I've seen for myself all the construction happening across America for lithium batteries and chemical factories, EVs etc. All those would eventually demand raw materials. When will they finish construction and start production? Where are they getting their raw materials from? Who has the skills to be their workforce? That's where I get my "gut instinct" forecasting from - not exactly a guru but often than not, my team's forecasts are on the money for investment entry and exits.
Each to their own risk/reward analysis as I always say.
Hope this helps. Cheers
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