The cure for high prices, battery metals edition
  • As the saying goes – the best cure for high prices is high prices.
  • According to GS this is now coming to battery metals (cobalt, lithium and nickel).
  • In other words, despite an exponential demand profile, the surge in prices is bringing on a huge supply response.
  • We forecast all three metals to shift into sustained surplus over the next 1-2 years” (see chart).
  • Lithium is the most prominent in this trend, where we expect supply growth to average just over 30% per year over 2022-25, reflecting the ramp-up of new projects in Australia, China and Chile in particular.

AverageInvestor's avatar
I think @jennymanydots follows this space pretty closely. I wonder what her thoughts are on the GS forecast.
Jennifer's avatar

Benchmark outlines five reasons why it feels the Goldman Sachs call was wrong:
  1. The low quality of China’s hard rock and brine resources means the industry cannot rely on feedstock from the country to meet market demand;
  1. “Capacity does not equal supply” with the example of Tianqi Lithium’s Kwinana refinery in Western Australia a case in point with a decade long path from announcement to full production (now targeted for 2025);
  1. New lithium supply comes at a higher cost base as deposits with unconventional mineralogy, lower grades, and higher strip ratios are developed and new, often smaller, converters struggle to keep costs down;
  1. “There is no single lithium price” – a large portion of the market is under long term fixed and variable price contracts, meaning it will take time for spot and contract prices to converge;
  1. A significant portion of chemical capacity is being used to reprocess material that does not meet downstream specifications – this “merely represents lower efficiency production rather than the introduction of new lithium units to market.”

Interesting, for believing the lithium bull market was over, they sure increased their holdings in something they believed would be in a downtrend:

I'm not overly informed on cobalt, as it's one I believe will be phased out as soon as possible due to ethical issues (child labour in the DRC) as well as cost. However, nickel is clearly heading for supply shortages. BHP, the world's largest mining company, sees nickel as one of the three "future-facing commodities" along with copper & potash. BHP along with Vale & Glencore and others are looking to acquire nickel deposits - many in the Ring of Fire in Ontario. According to Rystad Energy's Oct '21 press release, global demand for high-grade nickel will outweigh supply by 2024 and will continue a steady year-on-year climb. See my June 1st post about the Need for Nickel and there is plenty of evidence to indicate that GS is incorrect in their assessment. If the second half does see a decline in prices due to a recession, it's the perfect time to buy!