Demand for EVs has been growing but has slowed a little recently. Long term the demand growth story remains intact, but short term it is a little uncertain.
The reduced demand for lithium within the highly volatile China spot market has been further exacerbated by de stocking.
Supply has grown rapidly due to cheap Chinese lepidolite which has entered the market due to high prices, and these producers have not yet left the market, but soon will at these prices. Both green and brownfield expansions (including our own eg olaroz 2, sdv and hombre muerto expansions) have added supply and will continue to do so over the next 1-2 years.
the good news to my eye is:
- our resources (except mt caittlan which is now a more minor asset) are all lowest quartile on the cost curve, and our resources are majority brine, which by definition operates on much better margins than all spodumene except perhaps green bushes (once accounting for hydroxide conversion), so even at current prices we are still profitable eg at $10k usd /t we are still massively ng >50% margins on brine;
- this means we are more profitable on a unit margin basis than Pilbara, min res and other projects at current prices; yet our sp has fallen >50% whilst PLS has fallen 30%; we have a larger projected output in terms of LCE at around 160k than everyone else except SQM and ALB, so we have scale advantages too which improves bottom line margins. Cost synergies from the merger will help this. We also have better geographic and brine/ spod and carbonate/ DLE / hydroxide diversification.
- the first phase of a supply tightening response is already starting to happen ie Liontown expansion delays due to funding issues, Core moving to care and maintenance, IGO reducing output and sales from Greenbushes, SQM and Alb slowing expansions and production, etc. We will see further delays in new mines and expansions coming on line, and Chinese lepidolite is cashflow negative at current prices so they will have to shut down soon.
once the cycle turns, the low inventory levels will become a driver of demand as cathode manufacturers will rush to re build inventory in case price spikes, to try and get ahead of the rising price.
so whilst I have no idea what EV sales will be in 2024, I doubt they will decrease, so I think that due to the changes in supply outlined above, we will see price stabilise near current levels (more than double the lows of 2019-20), then turn a corner , within the next 6-12 months.
trying to predict the exact time of the turnaround is a mugs game due to so many moving parts and unpredictable timing of factors, but just as the surest fix to high prices is high prices (due to the supply response), the surest fix to low prices is low prices, as long as demand is stable or grows at least modestly which it will.
therefore I think we are entering compelling value territory with a 2-3 year investment horizon. I can foresee the various LTM projects all ramping into a rising price environment in 2025-2026. I wouldn’t back the truck up just yet as a lower entry point may present itself for a patient investor, but I added another 500 at 7.23 today and am happy to accumulate on the way down if it drops further. I don’t mind if the shares trade sideways or downwards over the next 6-12 months as I’m not looking to ‘time’ the exact bottom and make a quick buck. The reality is that with CGTimplications, I need to hold the shares at least 12mo as they aren’t in super and I’m not a fund manager or trader who can trade in and out over short periods.
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