I've been tagged in close to 30 posts over the last 2 weeks, so here are my quick thoughts on the lithium market as I sip my morning coffee. The recent downturn is in my opinion is simply the downstreaming is bottlenecked. CATL is at 95% utilisation and hence the consumption of lithium ore is capped until more downstreaming capacity is built (which it is and at a rapid pace). So we are in a period where its a perfect time to drive down the GFEX. Given it seems there is currently a downstreaming bottleneck, driving down the price of lithium makes sense and it's a good opportunity to do so. One thing i have noticed is it seems the lithium stockpile data presented out by the likes of SMM and Mysteel are being treated as gospel by most lithium commentators. The truth is nobody knows how much LCE China has stockpiled. You used to go to jail for having this type of information (research Stern Hu if you think its a conspiracy), now people think they are going to give it out for free? Therefore, I pay zero attention to public stockpile data. Also, you need to understand, It doesn't matter if you're in a deficit or surplus, the GFEX can be manipulated thanks to a little something called inventory. You can keep manipulating the futures price until you've got insufficient deliverable material. That's when it gets messy. Made up example: Demand = 3.7 Mt of LCE/year Supply = 3.6 Mt of LCE/year Inventories = 50 kt of LCE Now there is a 100 kt annual deficit. That 50 kt inventory can conceal the deficit: Month 1: inventories fall -8.3kt Month 2: inventories fall - 8.3kt Month 3: inventories fall - 8.3kt Month 6: Inventories become 0. Whilst this is going on, imagine a large participant aggressively sells GFEX futures. Heavy selling could push GFEX from 150k to 100k. The market can initially look supplied because consumers are receiving material. But they're partly eating into the stockpile. And this can carry on as long as by month 6 you're comfortable you can replenish the stockpile. It is 100% in the interest of the people consuming lithium to do this. That said, i think this strategy fails because: 1.) The incentive price to bring on new mines is being under estimated. The price needs to stay above ~$2500 USD for a decent amount of time for financiers to gain confidence to start funding these projects. 2.) The more these rapid price fluctuations happen, the harder each time it is for mine restarts, expansions, etc. to take place. Raise money, restart, care and maintenance, raise money, restart, care and maintenance. All over short time frames. It breaks people's confidence in the lithium market and it will be harder and harder for mines to get funding each time this cycle occurs. 3.) CATL is running at a ~95% factory utilisation rate with production of 498 GWh. Their production capacity is essentially full. Hence the demand for lithium is currently bottlenecked until expansion takes place. This buys time until the 764 GWh under construction is completed. 4.) Greenbushes is aging, Manono isn't going to be the prized jewels people think it will be, many mines greatly under perform from their studies, governance issues in Zimbabwe, lack of infrastructure in Nigeria and instability in the likes of Mali and the DRC. All of the above will put extreme pressure on the stockpiles. Inventory can hide a deficit short term, but it cant eliminate one. Cheers for reading!

Some of my latest thoughts on the lithium market as I sip my morning coffee! I was reading a few analysts supply demand tables recently and it came to me that the majority of analysts are still blindly plucking numbers out of a company's DFS and putting them into their supply. This drastically overstates the supply side. Several main things have become clear watching companies enter the mining phase over the last several years. Producers can't achieve the recoveries in their metallurgical studies. They can't even get close. They also cant achieve the grade (SC6, SC5.5, etc.). Companies have gone to presenting outputs in SC5.5 from SC6 after they realised nobody except Greenbushes could achieve SC6. The problem is there's very limited mines that are even achieving SC5.5. Using Liontown as an example. They did ~103kt of concentrate last quarter but it was SC5. In their DFS they had 127kt but of SC6. For SC5 you need ~ 10 tonnes to make 1 tonne of LCE. For SC6 you need ~8 tonnes to make 1 tonne of LCE. So it's less tonnes and lower grade than their DFS which equates to a 33% lower contained LCE output! And that's not specific to just Liontown. Core, Sigma, Goulamina, Bougouni, etc. are all falling short of their studies significantly. And why is this? Firstly, pegmatites are very complex. They are zoned. Their composition not only varies with depth but cross sectionally. For example, at 60m depth, a pegmatite might contain ~1% lepidolite, 12% spodumene, 1.5% Iron. At 80m it could change rapidly to 1.4% lepidolite, 9%spodumene and 2% Iron. This variability wrecks havoc on your plant, lowering recoveries and grade. Also, It's rare that you only get one lithium bearing mineral in a pegmatite. You could have spodumene, lepidolite, amblygonite and lithium bearing micas all in one sample, all contributing to the head grade. But when it comes to processing, the spodumene will be floated out and so the other lithium minerals that were contributing to the grade will be removed. So in effect the head grade never truly reflected the recoverable spodumene. Assaying for grade can't measure minerology. Pegmatites are so variable, and whilst we capture the grade well, not enough mineralogy breakdown work is done. There's also other factors such as you're going to get waste rock (Gabbro, basalt, etc.) at the pegmatite wall rock interface. These interfaces aren't getting tested metallurgically. That's why stacked pegmatites are not favored as you have many interfaces. So personally, i think analysts should be applying a decent blanket reduction to their supply tables unless more reliable test work is done on deposits. Cheers for reading!