They’re at it again – the so called experts are stating that the battery minerals bull run is over. At least, that’s what one of the large investment banks said this week, sending lithium stocks globally into free fall. So should you be concerned about the lithium stocks in your portfolio? In my view, no, we’ve heard all of this before.
In 2018 it was another of the large investment banks that released a report claiming that there was an oversupply of lithium. At this point, lithium was trading at almost US$20,000 tonne, but following these comments, the price of lithium fell to around US$8,000 tonne.
The bank based their argument on the fact that many of the battery and vehicle manufacturers had taken their battery R&D projects offline and as a result, the demand for lithium was not as strong as initially forecast.
I completely disagreed with these comments when they released this report in 2018 – as an investor in early stage lithium companies, my own research highlighted a global shortage of lithium over the next decade at least – the battery and vehicle manufacturers were not taking their projects offline because they didn’t believe lithium was the way of the future, they took them offline because they couldn’t source enough lithium to conduct their research.
Lets look at what happened once equity markets realised that the lithium supply shortage has been brought forward; from the start of 2020, the price of lithium surged to an all time high, peaking at just over US$70,000 tonne earlier this year.
The wrong call?
You may wonder how the large banks got it so wrong? I don’t think they did. They would be aware of their influence in the market, and I’ll bet that their clients didn’t have enough exposure to lithium. And while we couldn’t possibly say for certain, I’m sure that these banks and their clients were on the buy side in the early days of lithium’s impressive run that started in early 2020.
Lithium Oversupply 2.0?
Now it seems we have a case of de-ja-vu. Lithium was hovering around its all time high and now another major bank have released a report stating that battery minerals are overpriced and their run is over. When Goldman Sachs released their report this week, the share prices of lithium stocks fell sharply across the world. And if you were to ask me if I think these new comments from a large investment bank are correct – I’d say absolutely not.
Our first Lithium Sector Report highlights the reasons that we believe lithium is undervalued, and those reasons are still valid today, and therein lies the opportunity.
While I think that some of the smaller lithium explorer and developers that had their impressive runs on the back of the surging lithium price will come off following these latest comments, I believe any weakness in lithium stocks will be relatively short lived (up to 12 months) and there will be some excellent buying opportunities, especially at the smaller end of the market if you know where to look.
I still firmly believe that lithium supply will fail to meet demand at least for the next decade, which should force the price of lithium even higher. As stated in our 2021 report, deliverability is the key to finding value in lithium stocks – and for those that can bring their mines into production, they will sell as much lithium as they can produce. The key is identifying the lithium explorers and developers that have the ability to bring their mines online.
