What I'm talking about is strategic stockpiles not normal...

What I'm talking about is strategic stockpiles not normal stockpiles. Normal stockpiles have an embedded assumption that manufacturing / supply capacity exists that can supply customers needs at short notice. Embedded in this is that an ample supply of all raw materials necessary for manufacturing exists. Normal just in time rules apply whereby the manufacturer looks at at stock holding costs, usage rates and stock ordering costs. From this they establish a sensible order quantity and reorder when stocks hit a preset reorder quantity.

The issue is what changes a competent risk management department may make to this normal purchasing process. Lithium has set off key warning bells. There has been past, current or expected shortages and there is substantial price volatility. There is known massive future demand - all the Gigafactories under construction. There is expected high future end demand - all the countries banning ICE's. So what might a risk management team do. Well firstly they would realise that Lithium is one of the critical supply inputs and if they don't have it, then production will stop. This is a massive cost that some extra holding costs are worth incurring to avoid shutdown's. This means the risk tolerance around minimal or no supply is effectively zero. Additional stock holding costs (inefficiencies) can be accepted if they have a realistic chance of keeping production running.

These risk management teams already know that if supply gets tight 500,000 yuan/t ($75k) pricing for Carbonate / Hydroxide can occur. If the price drops due to what looks like a temporary over-supply situation, I think at least some of these risk management teams will make additional strategic purchases of lithium carbonate / hydroxide. This will ensure that they remain in production even if there is a future supply shortage. Additionally if one of the large producers does this purchasing, it increases the chances of a near-term supply shortage.

What would happen if the price fell to say US$30k/t and several modest/big end users decided to create large strategic stockpiles? The over-supply is gone and prices are increasing again so they have now locked in significant supply at a price better than their competitors. Additionally with this supply removed, some competitors may fairly soon find they can't get the supply they need. The producer with strategic stockpiles now have both continuity of supply and potentially higher output pricing due to input shortages at competitors. Even if it can't increase prices, they can guarantee supply which is likely to result in additional orders. Stockpiling lithium may therefore also become a competitive weapon in the Battery/OEM space.

Then there is government stockpiling noting its a strategic resource (USA has announced they are considering this)

At least one German retail fund was noted a few months back that intended to create a lithium back fund investors could buy into. If the price hits $30k/t and is expected to return to $75k within a few months or years, that sort of fund would be an appealing investment. A potential >100% return with no production risk. All that is needed is a secure warehouse.

IMO these strategic stockpiling uses for lithium are not factored into Goldman's model correctly.