Easy money has gone' in lithium, investors warned
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Warwick Grigor: "The speculators have gotten in there, made the fast money. If you come in now you've got to be a lot more selective." Bloomberg
by Angela Macdonald-Smith
Retail investors in the popular battery minerals sector have been warned they need to be much more choosy after a roller-coaster ride in some stock prices in recent years amid investment crazes for graphite, then lithium and then cobalt.
"The early birds have already taken the worms," veteran resources stockpicker Warwick Grigor told a conference in Brisbane on Thursday, describing the battery trend as the biggest influence on the mining and energy sector since last decade's Chinese-driven resources boom.
"The speculators have gotten in there, made the fast money. If you come in now you've got to be a lot more selective."
The various inputs into batteries are offering a selection of plays for investors looking to tap into the huge growth seen in electric vehicles, a market expected by Bloomberg New Energy Finance to expand to more than 20 million vehicles a year by 2030, up from less than 2 million now and where mainstream manufacturers such as Volkswagen and Chevrolet are taking on specialists such as Tesla.
Mr Grigor, executive chairman of Sydney-based Far East Capital, said lithium "has already run its course" with no shortage of resources and several new mines coming online.
"The easy money is gone," he said. "If you make the wrong decision there you're never going to see your money back again, so I'd be careful there."
More clarity needed
Cobalt, meanwhile, should stay "stronger for longer" given expected shortages of supply even after the restart of Glencore's Katanga mine in the Democratic Republic of Congo, the country supplying more than 60 per cent of supply but of which some buyers are wary due to child labour exploitation.
Graphite, meanwhile, where investor interest has quietened down since 2016, "is looking better", Mr Grigor said, but more clarity is needed on supply, which is only expected to emerge in the next few months after Syrah Resources stabilises production at its large new Balama mine in Mozambique.
If it is successful and commissioning goes according to plan, "there won't be room for anyone else in the flake graphite market in the near term," Mr Grigor said. "But given the level of shorting of the shares in the market there are many investors out there that doubt whether Syrah is going to achieve what it aims to do."
The comments come after some bearish forecasts on lithium from analysts over the last few months, including a controversial Morgan Stanley report pointing to a possible 45 per cent slump in lithium prices in the next few years, reversing the recent doubling in price. Canaccord is also anticipating a slackening in the market in 2019-23 after a tight 2018 as increasing demand is more than offset by the wave of supply response, while UBS and Roskill are also forecasting declines.
Wood Mackenzie on Thursday added its voice to the debate, forecasting a drop of more than 20 per cent this year in prices for both lithium carbonate and spodumene concentrate, which is made into lithium products for use in batteries. An even sharper decline is seen in 2019.
For cobalt, however, prices should jump 28 per cent this year to more than $US70,000 ($89,000) a tonne on top of last year's doubling, says Wood Mackenzie, although it forecasts that will not last and that a slide is likely in 2019 and 2020.
The consultancy said that by 2022 it expects demand for cobalt from the battery sector alone to reach 98,000 tonnes, or 61 per cent of the total market. "While such a figure would have seemed unrealistic a few months ago, the incremental supply from Glencore, ERG [Eurasian Resources Group] and others now means that we expect significant surpluses in the years 2019 to 2022," it noted.
Plenty of opportunities
Still, speakers at the Brisbane conference were more bullish, with resources stocks analyst Rob Murdoch of Austex Mining pointing to "plenty of opportunities" for investors in the cobalt space. He was still cautious on graphite and lithium stocks, with no shortage of resources despite a near-term production shortage before new supply comes online.
Mr Grigor said he anticipated institutional money to rotate out of lithium stocks this year and into cobalt stocks as investors "get confirmation that the lithium stocks have peaked".
"Institutions are yet to buy into cobalt in a big way, partly because there are not many credible vehicles and they are still doing their homework," he said, pointing to Cobalt Blue and Northern Cobalt as the most likely to attract institutional support.
Vanadium was also cited as a potential interesting sector emerging for investors, while Mr Grigor, who is also chairman of First Graphene, was particularly enthusiastic about graphene, used to improve performance of existing batteries. He said that graphene supercapacitors, an ultra-quick storage system based on physical rather than chemical storage of energy, represented "the future for electricity storage".
"We've got lithium-ion today – that's the best we've got – but we can do a lot better," he said.
The reporter attended the Energy & Battery Minerals Conference as a guest of organiser NM Events.
COB Price at posting:
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