SQM Lithium Oversupply Scare 2.0: SQM 2010: "We Can Supply Lithium For 1000 years". SQM 2018: "Maybe We Can Produce 216k T Of Lithium LCE In 2025"
My dear overestimated by social media overextended family of friends and followers, I do hope that the following warning will come as a surprise only to those who are recovering from pot-related investing. After all, to follow Warren Buffett's investment advice you have to "kick the tires" and try all the products yourself ... As we already know, all normal people are spending 10 times more time on research how to pick up the best next flat screen 4k HD TV than on a due diligence on "a sure stock" which will make all dreams come true. (I have made it up - 10 times, the actual number is ... much higher.)
There is only one sure thing which was recently discovered by mathematicians from CIA which will make you filthy rich very fast - Bitcoin, all other brave investment ideas must be taken with suspicion and proper due diligence. In short, do not buy everything, please, I am talking about on this blog and read my disclaimers as usual.
Only the history will tell us how Mr Market is going to treat the last week's events in the "Opaque Lithium Kingdom". Was it the best entry point of the decade just before the real exponential take off in the growth of Electric Cars entering mass-market territory or a sobering warning, that everything without blockchain in the name can go faster down than up? History teaches us that bull markets are taking stairs going up and bear markets prefer elevators going down. I do not know the future, I only can try to remember it. There is no investment advice on this blog and you can only read Chronicles of Energy rEVolution here.
SQM Lithium Oversupply Scare 2.0 is nothing new to those who were born after 2000. I still vividly remember the 2nd Lithium Supply And Markets conference held in Las Vegas in 2010. "The Lithium Big Three" one after another was putting buckets of ice brine on all excited crowd in the room. "We can supply lithium for the next 1000 years" - it was a very clear message. I am still thinking that somebody with a good for $250 million chequebooks could buy all lithium wannabee juniors in the room on the spot. Needless to say, how much brine has passed from those times, sweet memories - some of those juniors are bankrupt, others are in production already and exceeding market caps in billions of dollars.
"The Old Lithium Big Three" are not there anymore, Chinese players have stormed the market by abordage. In "The New Lithium Top Five" FMC is pushed by Ganfeng Lithium and Tianqi on the 5th place. By the way, in 2010 we had all trading houses and major conglomerates from Japan, few majors from South Korea and only literally a couple of companies from China participating in that conference. Today China is the Centre of The Lithium Universe.
But back to SQM Lithium Oversupply Scare 2.0, what is all that excitement about? Everybody will decide for themselves before Mr Market will pick up the winners and losers. The short version of the SQM and CORFO deal is reported by Reuters.
"Under the new contract, SQM would be able to produce up to 216,000 tonnes of lithium carbonate a year through 2025 in the Salar de Atacama, the source of half the company’s revenue, if it makes certain investments and obtains the relevant permits." Reuters
One of the first good analyses is published here. And Lachlan Shaw's view from UBS is being presented above. To put these things in perspective: UBS is expecting 2,898% jump in lithium demand in 100% EV world! Roskill has tripled their base case scenario for lithium demand to soar to over 1,000,000 T of Lithium LCE to be produced annually in 2026.
Another important number is that just 230,000 T of Lithium LCE was produced in 2017. If anything, this event should just bring some comfort to those who are still worried that there will be not enough lithium to go 100% Electric or that lithium hydroxide price will go to $100,000 per T and this price jump and the shortage will kill all idea of the mass market for Electric Cars.
Last summer I have brought my "totally outrages" personal forecast that we will have to produce 36 million T of Lithium LCE by 2040 in order just to meet IEA target of 600 million electric cars on the roads. I will give you another one - 100 million T of Lithium LCE have to be produced by 2050 in case if Elon Musk and Warren Buffett are both right and all cars will be electric ... long before it.
And we are not even talking here about Energy Storage, personal communication, drones and hungry Robots coming after all that. So what have "wiped billions of dollars from lithium companies valuations last week"? "CORFO permission for SQM" to produce 216,000 T of Lithium LCE in 2025? This bull market has not even started if the tree can be shaken by this drop in the bucket. Strong hands were busy picking up everything they can in the solid names. And solid names means not just the word lithium in companies' names.
Now let's start the serious conversation about The Security of Lithium Supply. It looks like the first mantra is learnt by now: The Price Of Lithium Is The Second Thought After You Have Got Some Secure Supply. Now let's start thinking about the real challenge: The Price For Lithium And Its Amount Somewhere Are Not Important If You Can't Get It. I will leave this stimulating process for all of you who is really interested. Scene one will be with China diverting supply of Lithium Chemicals for Batteries to their own producers. Scene two will be with Australia, Chile, Argentina, Canada and others prohibiting the export of any Battery Grade Lithium Chemicals other than in Lithium Batteries. And if you are still thinking that we are not in DRC with "AKM rule of law", just watch some TV this afternoon ... Orange is the new Black.
As you already know, we are in a sugar business for Coca-Cola with our International Lithium Corp. Now it is time to think about the next step after Vertically Integrated Lithium Business will be built. My LinkedIn space is getting more and more crowded with my new friends from China, but I am still waiting for that call from Elon Musk. Maybe it is not too late to discuss a few great locations for Tesla Gigafactories in Argentina, Ireland and Canada.
Please read legal disclaimer. There is no investment advice on this blog. Always consult a qualified financial adviser before any investment decisions. DYOR.
Disclosure: I am/we are long ILHMF, TRRXF.