House Mountain Partners

volatility

Taming the Hydra - Volatility, Risk and the Capital Cycle in Energy Metals

Chris BerryComment

By Chris Berry (@cberry1)

Click here for a PDF version of this note

In late 2018, we published a note examining whether volatility was a positive or negative for lithium investment. At the time, lithium pricing and lithium equity prices were at much higher (and ultimately unsustainable) levels. Lithium spot pricing has been more than cut in half and has wreaked havoc on the production plans of Alita, Nemaska, Albemarle and Mineral Resources, Livent, SQM, Galaxy, Altura, and Pilbara – not to mention their share prices despite the early run up in January 2020. The irony here is that the relative success of new hard rock entrants into the lithium sector has created an oversupply glut which has run well ahead of robust demand for the time being pressuring the whole sector. This has happened even as downstream players such as OEMs talk about battery shortages.

In short, nobody has been immune and a lesson here is that while lithium is indeed strategic and necessary for a lower carbon future, it is a commodity/specialty chemical not immune from the capital cycle. The same could be said for other metals, shown below.

Is This the Turn in the Metals Markets?

Chris Berry

By Chris Berry

  

 

 

  • Precious metals roared higher yesterday.
  • This was presumably due to a confluence of events including Iraq dissolving into civil war, more unrest in the Ukraine, and Fed Chair Yellen's dovish remarks regarding keeping rates low for an extended period.
  • Lest we get too excited, base metals were left in the dust and bond yields fell precipitously.
  • These two reliable indicators of growth (and inflationary expectations) lead us to believe that what happened yesterday was either short covering or a profit taking opportunity and nothing more.

 

Plus Ca Change…..

I'll admit to being surprised at the move in gold and silver yesterday. It's almost as if people were looking for an excuse to take metals prices higher.