I believe lithium sector is repeating the iron ore cycle,
Oversupply issue drove iron ore price to a record low of USD$38/dmt in December of 2015.
Then doomed view prevails and expected iron ore price to stay at USD$30, never return to USD$100/ton.
But the reality was, iron hit the low of USD$38/ton in December 2015,
Then bounced to USD$55/ton in March 2016,
Major institutions were still having doomed views on iron ore, even Goldman Sachs forecast iron ore price would drop to USD$40 in December 2016 quarter.
But the reality was iron ore price hit USD$78/ton.
Now iron ore price surpasses USD$100/ton, at USD$108/ton!
But cash cost for big four iron ore producers are well under USD$30/ton (even FMG has substantially reduced their cash cost, and its share price rises from $1.70 to $9).
Iron ore and lithium have many in common, both demand from China and China is heavily dependent on import to meet their demand. However, rapid rampant spodumene production from Australia (account for 2/3 of total import, 1/3 from brine) caused temporary oversupply issue as a result falling lithium price.
However, the average production cost for Australian hard rock mines except Greenbushes, were around USD$400 to USD$600 per ton. The price is usually bottomed at average production cost due to simple economic issue. The price recovery is also happening quickly than expected.
There’re few different factors, lithium demand will increase dramatically due to hundreds of billions dollars investments from large companies and strong governments support especially from China and Europe. The lithium demand is not just from China, but will from Europe, US and other countries.
I believe lithium sector is at around the bottom of the cycle, shouldn’t stay at current level for months.
DYOR. Goldman puts iron ore at $40 by year-end Andrew Topf | May 8, 2016 | 4:50 pm Iron Ore
Goldman Sachs says iron ore will keep dropping throughout 2016, though not as much as it initially forecast, citing continued oversupply as the primary culprit.
In a report, the influential investment bank raised its quarterly outlook for iron ore by 47 percent to US$55 a tonne – which according to Sachs, would be the metal’s peak for the year. From there, it has iron ore steadily falling from July to September to $45, dropping to $40 for the fourth quarter.
Data from company reports suggest that the cash operating costs of the big four mining companies are US$23.6 per ton for Vale (NYSE:VALE), US$20.8 per metric ton for Rio Tinto (NYSE:RIO), US$25.89 per metric ton for BHP Billiton (NYSE: BHP) and US$51 per metric ton for Fortescue Mining Group (OTCBB:FSUMF).
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