Burning Lithium Boom Pits Wall Street Against Assholes

Reference Disputes Goldman predicts a flood of new productions is on the way, and that prices will collapse accordingly. The consultancy still sees prices falling from recent sky-high levels, but takes a more pessimistic view of the scale and timing of new supply.

“Two-step concern”

The mining industry is notoriously bad at meeting production targets, and lithium has added risk due to the highly complex technical processes involved in making the end products used in batteries, Benchmark said.

“You have this extra hurdle that arises because it’s not a commodity, it’s a specialty chemical,” Daisy Jennings-Gray, senior price analyst at Benchmark, said over the phone.

“It’s a two-step concern combining the traditional issues the mining industry has faced with the additional challenges a specialty chemicals producer might face.”

The spat may seem innocuous, but the stakes are high for those relying on the predictions, given lithium’s critical role in the electric vehicle revolution and the broader fight against climate change.

If deficits persist and prices rise further, it could cause automaker margins to collapse and potentially slow the mass rollout of electric vehicles.

But if prices fall, miners could abandon major new projects, paving the way for even bigger spikes and deeper deficits in the 2030s, when sales of electric vehicles are expected to overtake those of conventional cars if the industry wants to have a hope of hitting its net zero targets. Lithium carbonate in China was flat on Tuesday and has risen 72% this year.

“The lithium industry in its current form is very young, so it’s hard to say with certainty how responsive miners will be to bringing in new supplies,” said Peter Hannah, senior price development manager at Fastmarkets. , a pricing and industry rating agency. Advice.

“A lot of it depends on technology that we’ve never really seen before, and so there are a lot of variables to consider, and each one could prove each of us wrong in one way or another. ‘another one.”

Miscalculation

Of course, analyst disagreements are common in commodity markets, but the extent of the divergence is particularly acute in battery metals like lithium, where both supply and demand are growing at a blistering pace.

While a market like copper typically grows 2-4% per year, lithium analysts predict more than 20% growth in supply and demand between 2021 and 2025.

This means that minor differences in analysts’ assumptions – for example on battery chemistry or the timing of new mining expansions – can have a major impact on their supply and demand estimates. This is a problem that also occurs in other battery metals like cobalt and nickel.

George Heppel, who developed models for battery metal demand at commodities consultancy CRU Group before joining BASF SE earlier this year, said in a LinkedIn post last month that a mistake minor in the calculation of nickel demand meant that forecasts underestimated usage by around 30%. And others in the industry were doing the same.

“Several months after correcting my model, I was having lunch with a nickel analyst at an investment bank who angrily complained about how well the nickel demand numbers generated by the bank’s battery division were doing. too low. It was with great satisfaction that I was able to reveal the likely problem,” Heppel wrote.

In lithium, expert consultants say Wall Street travelers are far more likely to overlook industry nuances when conducting their research. Joe Lowry, the founder of specialist consultancy Global Lithium, has frequently taken to Twitter to decry perceived research shortcomings by banks.

Matt Fernley, London-based managing director at Battery Materials Review, an industry researcher, said sell-side reports “massively overestimate” the ease of adding new supplies and don’t take into account the complexity of the upgrade. in the production of new active ingredients. and qualification requirements.

“The lithium industry needs to raise hundreds of billions of dollars in capital for expansion over the next 10 to 15 years,” he said. “A lot of that has to come from equity and that’s going to be tough if stock prices are depressed because of such reports.”

Bloomberg

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