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General Market Commentary
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General Energy
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General Market Commentary
Why the Lithium Bear Case Is Wrong
Morgan Stanley was recently out with a report that recommended selling shares of lithium companies because it expects a sharp drop in prices as new supply comes online.
Morgan Stanley is wrong. Or it's late getting positioned in the lithium trend and is trying to send stocks lower so it can buy them.
Either way, shame on Morgan Stanley.
Here’s its nutshell version: Lithium prices will drop 45% by 2021 — from $13,375 to $7,332 per tonne — as new supply comes online, mainly from Chile. While there is a lithium deficit in 2018, there will be a surplus from 2019 onwards. Sales of electric vehicles would have to reach 31% of global sales in 2025 to “clear the market.”
While many have come out in opposition of Morgan Stanley’s position, the most credentialed is probably Simon Moores, CEO of Benchmark Mineral Intelligence, a London-based consultancy that monitors lithium prices globally.
According to Simon:
"Don’t usually comment on forecasts but the Morgan Stanley lithium one is ridiculous. When you understand even the basics of lithium, cathode and battery plants, and auto majors plans you realise the Morgan Stanley scenario has a 1 percent chance of happening."
And that’s because simply having lithium resources in the ground does not mean you can get them out in an economic fashion in time to supply the market. Chile does have a lot of lithium (the most in the world, actually), but infrastructure needs to be built to extract it and the lithium still needs to be processed.
New supply never just comes online in mining. It always takes longer than expected when dealing with permitting, locals, technical planning, financing, and construction.
As Simon Moores put it in an article he penned for El Mercurio, Morgan Stanley supposes 500,000 tonnes per year of production from Chile, and that “will not happen.”
Lithium brine operations typically take seven years to come online. Morgan Stanley is calling for surplus next year.
After calling the Morgan Stanley report “wrong” and “misleading”, Moores went on to say that, “In the face of demand that increases significantly in the short and long term, we expect global average prices to remain above US$10,000 in the foreseeable future.”
It’s no secret we’re extremely bullish on energy metals around here. That includes lithium, cobalt, graphite, vanadium, rare earths, and base metals like copper and nickel.