House Mountain Partners

security of supply

The Strategic Metals Supply Chain in an Era of De-globalization

Chris Berry1 Comment

By Chris Berry

Ed Note: **This piece is a shorter version of a book I am writing on the economic, financial, and geopolitical aspects of the energy transition and will publish in 2020.


 

What a difference a year makes. The Summer of 2018 can arguably be remembered as a time when investor sentiment for lithium and cobalt took a turn for the worse. Since then a paradox in the sector has only become more glaring: while prices for lithium and cobalt in various forms have continued to fall, long term demand projections haven’t budged and are still very much intact. This disconnect has caused many investors to leave the sector for the “safety” of index funds or cash.

While it’s true that spodumene originating from Western Australia has flooded the market as I believed it would, pushing lithium prices down, conversion capacity in China remains somewhat of a question mark. How much is existing? What is the spare capacity? How much is under construction? When will a new equilibrium be reached?

As someone who has been to China recently, these questions have answers that change more frequently than you’d like to believe. Once built, scaled, and fine-tuned, investor logic dictates that this will push prices for lithium carbonate and lithium hydroxide down further. While some sell side banks might agree here, the truth is, as always, somewhere in between.

Much the same can be said for cobalt which has a truly ugly chart (below). The recent decision by Glencore to put Mutanda, a truly world class copper/cobalt asset, on care and maintenance for the foreseeable future due to poor economics says volumes about resource nationalism and royalties hurting profitability (to put it mildly), but still says nothing about long-term demand for cobalt, which appears firmly intact.