2018 proved to be a mixed year for the lithium market. If we look back over the previous couple of years it was quite clear to see that a spark had been lit in this space - with many new juniors able to raise money and drill for possible discoveries on the back of a new demand story - the rise of battery materials for electric vehicles.
Being early in the demand story for a new technology like electric vehicles doesn’t always pay off - but when it does, and when the late comers start to see what you see - the run up in the underlying commodity and the related juniors can create huge gains - and quickly.
And this is exactly what happened to Lithium.
However, as talks of a bubble grew and worries about too much new supply coming online - and all at once - investor sentiment inevitably started to change. As the party began to falter and the enthusiasm began to fade, the price of Lithium reacted accordingly and started to fall.
Everyone watched the price fall and suddenly investor sentiment started to believe that the party for Lithium was over - and over for good.
But today, we believe something else.
We believe that the party has not stopped - but has just taken a pause. And because of the pause, the lithium market is perhaps in a far better situation today - for a sustained future bullish move to occur over the next few years - than it was a few years ago.
After all, the demand for electric vehicles and the battery materials needed for them hasn’t gone away - if anything the demand only continues to increase year on year as electric vehicles begin to push further towards mainstream adoption.
So - as contrarian investors - we have to ask ourselves a couple of questions.
Has anything changed to disrupt the story for a new lithium price rise over the next few years? And is the supply still limited, while the demand is still growing?
Or - to put it more simply - has the market just given us a new opportunity to re-enter the sector - when pessimism and scepticism still rule the day?
Let’s take a look at some previous guests on Palisade Radio, who came to the conclusion that Lithium was still at the beginning of a long run of higher prices to come - despite the negative sentiment we see surrounding it today.
Billionaire investor Mike Beck told us over a year ago that Lithium was a story that had the perfect combination of what he likes to see in a market. Namely, a series of multiple supply constraints and a newer set of demands quickly arriving over the horizon.
As an example, Mike told us about the 200k tons of demand for Lithium which was expected to increase to at least 800k by 2025.
Mike also talked about the fact that to bring a new mine online after a discovery typically took - a minimum - of seven years.
And so, even though our interview from billionaire investor Mike Beck was from over a year ago - is what we learnt from Mike still relevant for today? View the entire interview here to take another listen.
For a more recent update on the lithium market, let’s turn our attention to a new guest on the show from a few months ago, Robert Baylis.
Robert explained to us how the big shift in electric vehicles would be completely transformative for the automobile industry in general - and how lithium would play a major role within this.
From his research, Robert told us that as the mass adoption of electric vehicles continued, it was possible that eventually the average electric vehicle would be able to compete - on a cost purchase basis - with the vehicles we have today.
Robert also explained how the environmental impact on switching to an electric vehicle would only be seen in a more favourable light as more adoption took place - with China being a prime example of a push towards the electrification of all its vehicles over the next few decades. View our entire interview with Robert here.
Overall, the lithium market today is met with a deep sense of scepticism and a belief that there was too much hype - too soon. And we could argue that after the initial excitement and profits gained from a few years ago, this pause was a necessary step for perhaps a possible continuation of higher prices.
We can’t see the future with crystal clear vision, but the signs posts in the distance do appear to point to an eventual continuation of the party - only this time it may well continue for much longer into the night.
Until next time, happy contrarian investing.
The Palisade team
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