James Lew

Some random thoughts on the lithium market as i sip my morning coffee! The problem is that at the moment, there are only high quality assets that are operating. There's not a healthy spread of producers across the cost curve. There are no mid to low cost producers that can suddenly be turned on. And that's largely due to the recent rapid recovery in the lithium price and only the ones that survived the last down cycle staying online. Even the expansions, P2000 from PLS for example, which has existing infrastructure and is lower risk, is going to take several years to come online. The issue with this is, once the market swings into a deficit (like we are in now), due to the lack of quality assets that are able to come online, the tonnes come from marginal, high cost, price sensitive projects. This creates major instability and is very different to how most mature commodity markets behave (copper, Iron etc.). When the price rises, the extreme marginal tonnes rush in, when it softens slightly these tonnes exit. So we are just continually adding and removing unstable high cost tonnes. There are four main restarts/starts that are set to take place this year. DVP's pioneer dome, MIN's Bald Hill, Ngungaju and Core lithium's Finniss project. They could do a combined total of ~34kt this year. Pioneer Dome for example is going to be a DSO project, which means they aren't processing the ore themselves, they are selling ore ~1.2% Li2O grade. Just in June this year, they announced the FID for the start. The price assumption they've used is US$26,000/t China. Now the problem with this is, due to the recent cyclical price dip, the futures is now at US$22,000/t. If the lithium price keeps falling, it's possible that a large majority of these restarts (~34kt of LCE) won't go ahead. So if you take out 34kt of LCE, you're just getting higher lithium prices and repeating the same cycle. The faster the market grows, those marginal tonnes become an increasingly smaller proportion of total demand, making each cycle harder to balance than the last. Therefore, the price needs to go higher and stay there to incentivise new low cost projects to come online (excluding some low risk expansions from existing mines). If it doesn't, then prices could boom back to 2022 levels due to the combination of the pool of readily available high cost projects becoming increasingly scarce and the lag to build new mines. Also the fear of Jianxiawo being turned on is totally nonsensical. It's just an excuse to help drive the lithium price down. Why do we care so much about Jianxiawo coming back online (which would do about ~25kt this year), but nobody batted an eye lid when Bald Hill, Finniss, Pioneer dome and Ngungaju said they'd come online this year (which is higher at ~34kt this year). Also, as I've said many times before, even if it does come back online, due to the rapid growth of the market, it won't have the same effect as it did last time it was operating. That lever has been pulled. Cheers for reading!☕️