Pretty tough week last week ... and I see Cowen analyst (David Deckelbaum) put downgrades and cut their target stock prices on a number of Lithium names (several I own) including PLL (from $55 to $20) and ALB (from $220 to $130).
Somewhat of a conundrum going on. There are 3 basic "laws of economics" and one of them is the Law of Supply and Demand. And not wanting to get into a great debate, this is the simple ECON101 view, which looks like this
and in a free market world the market finds the "Equilibrium Price"
Now the thing with basic economics is you only change 1 variable (so "univariate analysis). Not only are we seeing concurrent large changes in both supply and demand but also the shape of the curve (yeah I know they are straight lines ... its just easier to show it)
So just for starters, since it takes a long time (supposedly 4 - 8 years) to get a new spodumene mine up and running, if we left the supply curve (the upwardly sloping line) unchanged, but increased demand (which means shifting the green curve to the right), then the equilibrium price must rise ... all others things remaining the same. It looks like this
No surprises here ... you see the equilibrium price has gone up and the further to the right the green curve shifts the higher the equilibrium price goes ... and to a great extent that's what we saw for 2022 and first half of 2023
And then comes the inevitable supply response (high prices attract marginal economic projects and compete for capital). First I'll just show it as if demand did not change
But demand did change ... so lets do that first ... and show a couple of new supply curves. The first S1 simply shows a "meaured supply" response that increase supply to only meet new demand (so the equilibrium price should not change) and then an "aggressive supply" response that "oversupplies" even the increased demand and leads to a falling price.
So that's all going on in the background as "market economics". In the forefront we have the market itself battling itself so to speak. You've got demand growth - some say not but not what I'm reading or seeing - and you got got sources of supply that just seem to be bound by market economics (yes China Lepidolite and Aftrica DSO - free money?)
Ken Brinsden was pretty clear (I think) in his view (my bolding):
"With EV sales at let’s say 30% growth you can you use that as a rough proxy for where it’s all at."Now that's just annual EV growth ,,, not including BESS or other uses
"what that translates to is - if it’s 30% growth downstream - that’s telling you that you need a minimum of new production in lithium raw materials of about 300-350,000 lithium carbonate equivalent tonnes (a year).“That is three Pilgangooras in one year. So the reality is when that happens, the industry can’t deliver it.”assuming I guess Pilgangoora at 680Ktpa SC and ~6.8/t SC to 1 LCE/t
Anyway, USA government keeps doing its bit to spur the "end production" (i.e.battery cells)
https://www.energy.gov/articles/biden-harris-administration-announces-35-billion-strengthen-domestic-battery-manufacturing
That whole supply chain needs to be built (takes a lot more than $3.5B ... good start though). This is a different pool of money that the DoE ATVM LPO capital.
Huge amount happening. The 10K (which we'll see end Feb) will be enlightening ... there is no 10Q for Q4 under SEC reporting,
(20min delay)
