Market Outlook: The podcast discusses the exponential growth in the lithium market, predicting that demand will outpace current forecasts and reach significant milestones faster than expected.
China's Policy Impact: The anti-involution policy from China is highlighted as a significant factor affecting the lithium market, with potential implications for supply dynamics and market competition.
Lithium Pricing: Current lithium prices are seen as unsustainable for many producers, with a market bottom believed to have occurred in June, signaling a potential upward trend in prices.
Supply and Demand Dynamics: The discussion emphasizes the importance of demand analysis over supply, noting that demand for electric vehicles and stationary storage is growing faster than many analysts predict.
Investment Opportunities: Africa is identified as a key region for lithium production, with conferences like Africa Down Under being critical for exploring new opportunities in transition-critical minerals.
Technological Trends: LFP (Lithium Iron Phosphate) is identified as the dominant battery chemistry for stationary storage, with no significant competition expected in the near term.
Company Insights: Companies like BYD and Albemarle are discussed, with BYD highlighted for its aggressive expansion in electric vehicles, while Albemarle is seen as balanced in its market valuation.
Key Takeaways: The podcast underscores the need for investors to focus on demand trends and policy shifts, as these will drive the future of the lithium market and related investment opportunities.
Transcript
People tend to project in straight lines when uh real growth is exponential. What we've seen in the best market I see forecasts of in 2030 600 800 gatt hours. Well, guess what? We'll probably reach that in 2 years, not 5 years. >> You've been on on many sort of site visits, seeing seeing parts of the world. >> Um well, the only the only traveling I did recently was to Las Vegas uh for the fast markets conference. >> How was that? Oh, it was pretty awesome. My first time in Vegas. Uh, but to be honest, I didn't I didn't really like the experience. Um, I think it's a different Vegas from what it used to be. I hear complaints that um it's all rent seeking behavior um there right now and it's really really true. Everything costs so much and they try to charge you for everything. >> Really? >> Yeah. Okay. >> Yeah. Uh, and the and the hotel, every single hotel, they charge a resort fee of something like 45 or 55 USD a night extra on top of what the hotel already charges. >> My god, >> it must be private equity owned or something. >> You know who doesn't do that? You should and you should come with us to the um Africa Down Under conference here in uh in Perth. I think it's the 3rd to the 5th of September. Pay it, put on a banger. There's um look, to be honest, there's probably more gold opportunities, but uh but Africa a great a great a great producer of of lithium. We're uh we're going to be there. And uh >> you run a transition fund as well, YJ, and there's plenty of transition critical minerals in the great continent of Africa. >> I tell you what, we can probably fix you up with a, you know, with a discounted ticket just for you, YJ, if you critical and I know you're going to drop me in Congo and forget all about me, right? >> Hey, great lithium projects in Congo, mate. Let's not forget about that. >> See, mate, YJ's coming to ADU Africa Down Under 3rd to 5th of September. Get your tickets. They're in the show notes. You and I are going to be there. >> We are, mate. Very excited for this conference. Big thanks to PET for putting this on, mate. I think this is going to be the year that Africa Down Under is. It's It's best year. It's best year ever after growing massively. >> Couldn't have said it better myself, mate. Get your tickets. >> Join us and YJ so he doesn't get dropped in the Congo. Uh thank you so much YJ for um for joining us on short notice. We're trying desperately to understand or wrap our heads around um this anti-involution policy which has has come out of of China. It's it's made a big impact on the lithium markets already. It's it's this is a like a kind of a big thing that we're trying to wrap our our heads around. And um we thought we' we'd speak to you all about what's going on here from from you know the the policy front in China, how that's affecting you know the the mines and the critical mineral supply and and why lithium is maybe maybe quite exposed to you know this emerging um thematic and policy shift in in China. Uh and for the listeners who don't know, this is YJ Lee who runs the Arcane um who's a fund manager for Arcane Capital and uh your fund performance has gone through the roof, mate. You were you were year to date up like 56%. It's a phenomenal phenomenal result. So congratulations on your your tremendous performance so far. We're glad to have your insights um to to to help us learn about this. >> Yeah. Hi. Hi guys. Yeah, great to be back on your show. Uh it's been what n uh 10 months I think since our last episode and boy so much has changed in the lithium uh market. I think uh in the previous episode we were talking about um well the bottom probably arriving and I think we're a little bit early on that but right now I believe we are past that. I think the bottom was in June this year and when when spongy was about $600 a ton and um carbonate was 8 uh,000 and now um you know prices are about 50% higher than that. So >> SP,000 bucks a ton like in in the space of of two months. It's it's truly remarkable. You were Yeah. It's it's amazing. Yeah. >> Yeah. Yeah. I mean at that point in time it didn't look um uh realistic to me which was we had a we had a price where 2/3 even up to 2/3 of the producers in the world don't make money and that is to me not sustainable you know uh for an industry that's growing easily 25 30 plus% per year doesn't make sense that more than half the suppliers don't make money so I think um that probably marked the bottom and now like you rightly point out um with the policies in China coming out a bit more in support of rational marketdriven um dynamics that probably signals um the bottom of the market. >> How do you think about this this anti-involution? It's like the the buzzword of the month at the moment. YJ, is it is it something sort of dominating your thinking and and the conversations you're having as well? um no I wouldn't say it's dominating but um this anti- involution thing let's let's take a step back and understand how um um this whole thing comes about. So China um I mean it's is a is a huge market and it is super super competitive. It is not the case that um um you know like they portray in the west is all centrally planned. It's all um government controlled. Not at all. What happens actually is that there's a central government layer. Yes. Which sets the country policies and then there are individual provinces which kind of act like your states in the US, right? Who have their own concerns, their own financing, their own um uh employment numbers to look out for, their own taxes to cover and um therefore their their incentives might be different from that of the national government. So national government sets the broad country policies. The local governments have to manage their local employment, local economies and then um down to the private sector um which um then has many companies that are fighting out in the market also fighting out at the same time against some of the stateowned enterprises. So it's uh it's it's an open marketplace. Um so I I was kind of describing the the uh story of competition in China right now that was the backdrop and what usually happens is that the government sees a clear direction forward for example 10 20 years ago government says um batteries we are going to be number one in the world in lithium and batteries and that's and that and they set a long-term vision for that before that it was ship building before that it was steel you know so um What happens is that government has set this long-term vision. Then the states, the provinces execute this um in each of their provinces to the best of their ability and uh com and incentivize companies to start up. Usually they incentivize this via um um tax policies and um other other the usual economic incentives. Yeah. Some subsidies, some tax policies, etc. And that allows many many companies to start up and then start competing with each other. And you know, China is a huge place, so many provinces. And when and when this happens, what usually happens is that at the start of any um major policy, maybe 50 to 100 companies get started up competing in this space and then uh by virtue of their competition, the strong survive, the weak die out. Typical Darwinian marketplace. Yeah. So um and this is and by by doing this they gain the skills they gain the expertise they gain the uh market shares and the winners eventually become the strong companies of the future right but the process of doing this creates huge competition um between the companies in each province and between the companies um at the national level that's why we are seeing today um over 50 EV companies in China um the numbers have dwindled over the last few years. Yes. But then um this is competition to the extent that they are all trying to survive and um by driving prices down that has caused um what we um we have a joke you know um everything that Chinese do uh that Chinese produce they turn it into the price of cabbage we call it baitia right so it goes from steel uh to ships to now EVs right they're so so cheap you can have an EV and ooling for what $5,000 Right. So um but this pro process of bringing prices down, competing um all the way uh leads to loss making situations, boom and bust cycles over um over decades and now we are at the bottom of one of these cycles which is for lithium and uh which means that nobody makes money but some players are going to survive and come out the stronger for it and that's that's how it is in the typical ical um Chinese uh way of doing things. >> Yeah. And and that that process I mean the the the competition bit kind of makes sense but one of the realities of the the competitive nature is that there are these these price wars which you know might actually in in some ways be a little bit anti-competitive. The the the focus on this supply side policy anti-involution as I understand it. It's actually looking to to refrain from price wars by reducing supply across, you know, industries, things steel, solar, you know, logistics, even medical devices. And and as a know, as as a result of that, there's a potentially a a mentality or or a cultural shift towards, you know, higher kind of profitability of the businesses um as a as opposed to the the the highly competitive um o over capacity and price wars. Is that is that like a fair characterization of of your interpretation or of the policy? >> Yeah, but what I'm um yes, they are trying to do this, but what I think that um this may not be as successful as um uh we think it's going to be because this is pure market economics, price wars, um making short-term losses for long-term gain is nothing new. Every economy um goes through this. We've seen uh we've seen price wars happen in in western countries in uh industries in the west as well. So it does not mean that this is um uh native to China. In fact what happened with the solar industry like you mentioned a few years ago in um uh during the green new deal uh periods the solar companies were making so much money they all cashed up. The big ones have billions of un in in in the bank. They can they can wait this out. They can they can make short-term losses. They're going to lose half half that stash, but they're going to come out with capacities double treble what they were 5 years ago. So, and that drives down their costs in the longer term. So, I don't see this um uh anti-involution policy immediately um succeeding because it is difficult. you are fighting uh market pressures. Um what I mean to say is that it is natural for for many companies in an industry to compete on prices drive prices even below costs for the short term so that uh that's uh to win the long-term game and no government policy can stamp this out immediately. uh to the extent that yes they might be able to target specific players that run uh at a loss so that they can subsidize them their operations in other ways i.e. CL um uh yeah that could be successful but industrywide uh I don't think it will work for the solar industry and I don't think it will work for the lithium industry. Why J I'm curious to just hear a couple thoughts on on why this has all kind of come about because there there is a bit of a notion that this came about from a cultural type push and it's the the government responding to that and that sort of dynamic through the major cities and the the cost of property rising so much and you know salaries being so competitive and these sorts of things. Do do you see that? Is that how you've sort of inferred this involution or anti-involution policy setting coming about? >> Um it's a little bit too early to make um firm judgments on this um policy. I think um where is coming from? Yes, to some extent. Uh they do see that um this competition has gone a little bit out of hand. Um and it's causing it's causing kind of um how how do I say uh it's it's it's a bit of a downer in terms of um the national um mentality you know um when everybody fights it out so much that nobody makes any money and everybody suffers for it it's not a great place to be. So I think they are trying to change the culture a little bit towards um more healthy um to set the tone for a more healthy uh expectation of future market conditions but I don't know whether that's going to work. >> Yeah. Yeah. And a lot of the the people we sort of spoken with have made the comparison to the supply side reform 1.0 sort of to call it in the 2015 16 period. How do you sort of compare and and contrast the differences now? Is is that a comparison you you kind of jump at or do you think we're in a kind of unique situation here? >> I mean, history rhymes, right? But never repeats itself. Um, back then it was mostly um competition at the large SOE level. Right now, China has become very very much a market um private. uh most of the market power uh a lot of market power has shifted over to the private companies um especially um in the lithium space um should I say and it's I think it's harder to uh you know actually make changes the way they want uh what they want to change because you know it's not a it's not a state so SOE that you have direct control into >> these are private businesses right So yeah, if you're trying to have a supply side policy that is is targeting the private businesses, one mechanism to to to have some input there from, you know, from from the government level would presumably be through these this licensing mechanism. And this is this is the the part of the news flow that is has has really kind of rippled through the lithium equities in the last couple of weeks. Um, and it's it's it's in relation to, you know, China's government revising the mineral resources law and the legislation which outlines that mine registrations and approvals are now down to the Ministry of Natural Resources. And that also means that the local governments can no longer license operations without authorization from the ministry. Um, we we kind of we we saw this a little bit ripple through with with notably the Jangi uh cattle mine, the Lipila mine there. I think you know it's also goes by the name 414 as well. Um how did you interpret that you know series of events as it ties into this you know this this policy as well. >> Um I see it in terms of economic incentive. So um when lithium prices were super high and lipidolite started coming onto the scene in 2122 then the government had no issue with these mines um coming online through whichever loopholes um you know a cow lane granite mine coming online to produce um lepidolite right uh as maybe the byproduct in a way uh the lepidolite being a byproduct but actually was the main economic product of the mine um therefore feeding into supply chains and bringing down the lithium prices so that the battery guys and the EV guys have u can survive and and u dominate the industry for the future. Yes, that's in line with the national um policy and therefore it's allowed. Now um prices have dropped so much that it's that other things become more important right um pollution for example lepidolite is highly highly um pollutive toxic even uh to refine and then you the amount of ore you have to move is simply ridiculous to produce a ton of um um lithium carbonate from that uh tangy mine the TNC war mine uh that CL runs it's a very very low grade mine the grade is 28%. and it's lepidoli you need to basically at such low grades you need to move what 350 tons of ore to produce a single ton of LC makes no sense right and if you want to scale this up uh some people say the the the capacity of this mine is 100,000 tons uh per year I don't think is that at the moment but um that is the that is the longer aim I think do the math you need to move 35 million tons of ore to produce that amount of LC before refining losses. >> It's remarkable. >> So maybe you need to produce 50. Uh yeah. So it it's crazy. I don't think they have a 35 million ton operation there >> and and the amount of pollution that will create will be insane. So now I think other things become more important. Um cheap uh raw materials can be bought in the open market from Africa from all over the world. Um now that now then the local pollution issues uh start coming up. this this one mine the um junky like junky cattle junctiony mine that was operating under a under a kalin license like it was the categorization was a you know a kalin a kalin mine but they were obviously not producing very much kalin or any I think so it was the wrong characterization so the the thing that they've kind of been like picked up on under this new new policy or enforcement of policy is to get that that licensing like to be appropriate there's a different royalty rate between the kalin mines and and a little lip like mine as I understand as well. So it's kind of like a a higher cross cross like a higher cost structure to um to to change it. And then within that same province there's like there's six or eight other other mines smaller scale which um which have to get their own like their own um licensing changed by September when they're they're kind of they're set to lapse. Is that all accurate? like and do you see risk to them being like being being shut down as well or like like what's your interpretation of that? >> Uh to be honest, I don't think anybody knows for sure. Um it's too vague at the moment. Nobody really knows unless you're like super super uh insider. >> Gotcha. So these are the rumors that are swirling around in the lithium lithium WhatsApp group chat. So >> yeah, but I mean I mean let's look at let's look at the bigger picture, right? Um >> we don't need to get into too much of the nitty-gritty. It doesn't matter what the um slightly different royalties for different minerals etc there. Let's look at the bigger picture. CL's mind gets taken out for minimally 3 months right maybe even 6 months >> that takes maybe about 20 30 uh at least uh 15 to 30 kilotons of LC out of the market. If the other mines get taken off for a couple of months uh as well then that's that much supply out of the market. But the big picture is that the lithium market last year was 1.2 into million tons LC this year is probably going to be 1.5 to 1.6 I think 1.6 six um other people more conservative think 1.5 but the bottom line is that the demand is growing 25 to 33% this year every 3 months that the market uh every 3 months the demand is growing at maybe 6% or 7%. Right? So think of it this way. Every 3 months the the world needs to bring a new TNC wall, a new CL like mine to the market to meet the incremental demand growth. Is that going to happen? I suppose when you pave it like that, you're getting in the nitty-gritty of the smaller supply stuff is um is is like less like a less pertinent part of the equation when you think of the supply demand and and you've you've been like constant on this point YJ for a long time that the like consensus is massively underestimating demand here and um yeah I'm keen to just like peel out what like why why consensus is so wrong. Um sometimes they are looking at the narrative. Um the the the story out there is that low prices means uh means that demand is not catching up to supply. Therefore, demand must be slow. But um that's what that's how the the news agencies tend to portray um uh this picture. But the fact is that go back to economics, right? Basic economics and your demand curve. Price quantity. The lower the price, the larger the quantity demanded. Translated into real world terms, the cheaper your car, the more uh people switch to this cheaper model, right? And now we now we see with low battery prices, cars, EVs getting cheaper than petrol vehicles, getting cheaper than diesel vehicles, um heavy used vehicles are are switching over very very quickly because the ROI on these electric vehicles is so much higher. Now, one of the uh things that I've been looking at very very closely which I think um analysts or consensus hasn't really focused on is electric trucks. This is huge. This is a huge market in China. Uh they sell about uh last year the heavy electric trucks in China sold about 75,000 units. This year they on track for 160,000 units over 100% growth year on year. Each of these heavy trucks has a battery 10 times the size of a of a passenger car. And these trucks are going everywhere in mining, in hauling. You know, you even see um uh China trling autonomous um uh trucking in China already. So I think that the demand for uh lithium is a lot higher now that prices are low, which is which I think is in line with economic theory. I don't understand why analysts have u car demand growing in the teens this year. Makes no sense. >> So demand is going to grow gang busters, right? What what does that sort of make you think? >> If demand grows gang busters, we know more supply needs to come online and the supply is going to come online naturally faster from the existing mines that are in production and can expand. And when I think of that matter, think of Liontown. Obviously, they revised their their ability to produce to to is 2.8 8 million tons peranom that they're um currently like like their mining rate is. But we know that that can be like 4 million tons peranom pretty quickly, which means more under more tons coming from underground, which means more ground support is actually going to be required to enable >> the more mining coming from underground. >> And why not use the best in the business when it comes to ground support, Sanvic ground support? >> Sanvic ground support. They're the only the only name you need to know when it comes to ground support, mate, because it can come to your mind in a jify like that because there's distribution hubs all over the world. They've got a team that cares about it and they they provide tailored service, great feedback, great people to order from, great people to to ensure that the product is on spec and it is delivering the results they need. Great great great person in Derek Herd. >> 100% mate. And just like the lithium market growing gang busters, these guys are improving year after year after year, mate. Ground support is not something that just needs to be sort of left in the corner. It gets better by the day. >> You know what the tagline is, mate? Keeping people safe. >> Keeping people safe. Call Sanvic ground support. What one one of the push backs that a lot of people have and I'm really curious to hear your thoughts on YJ is that a lot of this has been subsidyled government incentives tax credits these sorts of things and maybe we've seen some of them sort of peel off. How do you kind of respond to the narrative that it's only been propped up by governments thus far? Mm- um we've seen subsidies fall off in u many many economies and doesn't affect doesn't affect the rate of change of um EV adoption goes up towards um China is now at 50 over% um and subsidies have been falling off year on year >> and the the best component the stationary storage like the the growth there has been I think it's sort of safe to say it's been astounding and and underrated as well and I remember when we spoke a number of months ago, you were pretty you were pretty bullish on on this part of the market. I' I'd love to sort of get your uh reflections on how that's grown versus what you what you had thought back then and where you see that kind of evolving. >> Well, actually, I kind of raised my um best forecasts I think from 10 months ago. Uh I didn't I didn't go back to check the previous numbers, but I think they're higher now. I think uh by 2030 we reach a 1.5 terowatt hour mark from 200 uh just over 200 uh gawatt hours last year. I think this year we are slightly over 300. That's kind of in line with ro motion's estimate as well I think. And to why this is happening is because uh two things one batteries have become so cheap that the payback period on most grid level best is now 5 to seven years. And that's great economics, right? And in China, commercial best has now payback periods of 1 to two years. I'm not kidding you. I learned this from um uh the fast markets analyst. Uh credit to him, Chinese guy. um after his presentation at the fast markets conference I had a chat with him and he told me this what's happening in China is that for the commercial guys they are actually um when I say commercial best I mean smaller scale priv privately owned best systems right >> and what they do is that they charge uh midday when of course prices are pretty much negative and they discharge into the evening peak which is the usual best um operation right but then they also charge midnight and discharge early morning peak and that means that they use their asset twice a day not just once and that drives the uh yield of the asset and therefore the payback period becomes one to two years. With that kind of economics, people sure as hell are putting in tons of best into the market wherever they can. I've not met a single best manufacturer that says that they are short on demand. >> Yeah, that's that's fascinating. And this this part of the market is one where we've seen like a huge discrepancy with the with the people we've sort of spoken with and what their growth assumptions are versus consensus broker. Like a a sort of factor of 2x like some of the the feedback we've gotten is that they think this part of the market is twice as big as what a a heap of brokers out on on the street have have written it up to be. Is is that the sort of >> like thinking you've got as well that the the consensus in in Wall Street or whoever you sort of think about there is way below where it's actually at? >> People are projecting like as opposed to observing actual installation rates, they're they're um they're projecting, you know, the wrong numbers. >> Yeah, of course. I mean, it's it's the typical um thing, right? People tend to project in straight lines when uh real growth is exponential. um what we've seen in the best market uh I see forecasts of in 2030 600 800 gawatt hours well guess what we'll probably reach there in 2 years you know not 5 years and the same forecast error happens in solar I mean go back go back to and that's the other part of the best uh equation that I forgot to mention solar go back to the world energy outlook for the last 10 years all right they their forecasts are always off by a factor of about three. 3 years ago they said that uh last year's solar installations were going to be 200 gawatt. No, it was 600. And to the extent that um they all forecasting linearly, the real growth has been vertical. And now that drives the entire best market. So much solar is being put in the world today. Uh a lot of markets experience negative electricity pricing during the midday. You cannot install new solar without new uh without pairing them with batteries anymore. And just in time, battery prices have come down so much that solar plus batteries now are even cheaper on a kilowatt basis uh kilowatt hour basis than coal or gas. So it all makes sense now. And and if we touch on the the chemistry that's that's really dominating in that part of the market, LFP, is there is there any competition in in your mind there? >> Um, no, no competition there. Um, LFP is cheaper. Uh, it's got more charge cycles than NMC. Uh, great batteries don't really need the incremental increase in energy density that NMC delivers. uh you don't need u uh you don't need a battery to be able to provide uh higher faster acceleration for your for your car because um great batteries don't move. Uh so yeah, LFPs are are the chemistry of choice for best. >> Very. While we're on the the the chemistry piece, YJ, I'd love to get your observations on um like in the leadup to to cattle's like um IPO their the potential like the potent any observations on like um cattle's discourse to the market being talking up sodium ion and then sort of subsequent and and and and maybe maybe you know ensuring that there was an o over supply of production in the market via their their um their own mine which if you if you just take it on face value the It's uneconomic. However, cattle is making money on having lithium price be low and their margin is is um is incremental there. Do do you see any like like are you part of the cohort that thinks that like maybe maybe cattle was was being a little bit disingenuous in in their um in the way that they were talking about sodium and also in in their um in in in the in the supply and margin kind of component of that market. >> Um to be honest, not really. Yeah, I mean I I don't subscribe to every single um conspiracy theory. >> Not not everyone. >> Not everyone. Some of them maybe. Uh I mean to the extent that I think KD is um did run the the mind uh to influence lithium prices globally, I think that's true. >> But uh the sodium ion battery side, I mean I'll give them to be honest if I were K, I would probably develop sodium ion batteries as well because you're you're a large battery company. You can never say you know five years or 10 years down the road which u chemistry is going to become dominant. You have to play um every everything and you have the resources to develop everything and see what works right. Um and if our view of the lithium market um is right that best electric trucks, cars, the demand grows so quickly that lithium cannot um that there's not enough lithium in 2020, even 2026 onwards to meet demand to 2030, then something has to come in and pick up the slack. And the only something out there right now really is sodium. Yeah. So um I think there could be um a use case for sodium to pick up um some of the demand uh that cannot be met via lithium batteries for for example bass. Yes, a sodium uh battery setup will require about three times the land footprint compared to um uh LFPS. But if you're putting bass out in the desert, yeah, I mean you can use three times the space doesn't matter. So if if we focus on the ramifications like we sort of touched on the uh the price response has been pretty pretty quick in in the scheme of things but I think it's fair to say it's not in the interest of the the Chinese government to see lithium prices run away to levels they they got to sort of last time. So how do you think about that dynamic? I know they'd already sort of put a bit of um a bit of sort of influence in the amount of speculation that could take place with regard to to futures pricing and these sorts of things. Do you do you think there's a big role that they're sort of playing behind the scenes in where the lithium price sort of settles? >> Honestly, no. I don't think they are trying to um guide the government on a on a national government level basis. is I don't think they're trying to guide the price of um lithium per se. It's a very very small market and to be honest um if you look at lithium as a percentage of costs uh these days given a huge scale of manufacturing um the raw material isn't um yes it's a significant is some part of the bill of uh materials but it's no longer as large as as it used to be. Now manufacturing scale has kind of um driven production costs down in a in a very big way. So if even if lithium prices were to double from where they are today, go from 10 uh 10 12,000 to 20 10 20 24,000 um per ton LCE, I think the battery market could absorb that. CL and um uh BY have I I think have no real issues raising prices by a little bit to cover this cost and then everybody can um and then there'll be a healthy um uh and incentive pricing um in the market to incentivize new supply to come online. Otherwise, we go into a deficit much much quicker than people think. And >> so, so if we sort of reflect on that point, the the potential supply response, obviously through 22 into 23, we saw a magnificent supply response from an incredible runup in the price. And this sort of supply came from pockets where people didn't think it might otherwise would have come or it came on quicker from parts say Africa and Zimbabwe than others sort of it would. Are there regions that you think might be able to sort of flick on supply or existing minds that might expand supply that you're sort of keeping a keen eye on to to sort of see that this price level maintains? >> Well, we are running out of continents to be surprised from, right? I mean, the only remaining one is um Antarctica, isn't it? >> Yeah, but I mean um looking >> to extract it from the seafloor, mate. >> Well, that's that's nickel, man. People are trying that. Um I don't know how well that's going to go but >> well let's not go there. >> Yeah. >> Yeah. But um yeah it was a small market. Uh 2022 was a very small lithium market. It was what I think if I recall correctly an 800 kiloton market in total. Nothing compared to iron or copper etc. Tiny tiny metal market. We are still tiny. We're still small but it's a lot it's a lot bigger than before. This year if we are 1.6 million tons that's double the size. the market size has doubled. It will not be so easy to influence um the price either way from here going forward. The larger the market gets um the more supply you have to bring online to the market to crash the price. So in next year we are probably in a 2 million ton LC market. You would have if you bring on an additional 100 kilot tons like what happened um from Africa three years ago. Now you now you're influencing the market by 5% instead of the 16% that they used to be and it is not difficult uh sorry it is not easy to bring 100 kilot tons of supply to the market quickly. How they did it in Africa was literally they went to all the outcrops they could see and just started digging. No mine plans no uh very very few approvals just went in started digging and go. Same thing happened in Tangi. We had school children, unfortunately, um the economy incentives were there, go out into, you know, pick up rocks, stuff it into rice sacks, load it into the back of the truck, send it to the refiner. That's what happened. But I don't think um it is easy to influence the market in a 2 to 3 million ton uh market. >> I I suppos I suppose like what we're trying to figure out is so we've had some some supply out of the market. you pave the picture that demand is much like much higher and growing much faster than most the market are is expecting. A lot of the the the people who are have a more moderate outlook for lithium in the short term, they point to, you know, inventories are still very high, but they're probably not focusing on the fact that inventory days is at a local low because the market's much bigger now. Is the market tight enough in your opinion? Like have we like is the market so tight that we're going to see a pretty pronounced um move forward and upward in the price in your expectation? like is are we are we at that moment right now? Is this is this a trend that's going to continue or are we kind of just going to like moderate around you know a,000 bucks a ton of C6? >> Uh I I think you're exactly right that um people are focusing on the wrong inventory numbers. Um absolute inventory levels um yeah they matter but it's the days in in um uh usage that really really matters in a market that's growing um 30% a year. You need 30% more inventory every single year. So that number has to go up and uh you're also right that it's it's um I think it's tightening in a sense that we've not seen uh rejections of shipments like we saw in the last cycle. So in the uh 2020 um lithium ups was it 2020 or 18 um in the previous lithium boom uh boom and crash during the crash shipments were being rejected right from from Australian producers. We don't see that in this market. So something is going on. >> We've heard that too. We've heard that too. There's been no observation of any any caros Yeah. like being um being being pushed back or delayed or anything like that like has been seen. >> They must be speaking with the same people YJ. >> Yeah. Yeah. Yeah. So I mean to the extent that uh and and it's and it's very weird. I'm even hearing um stories of lowgrade uh even lepidolite being uh refined together or blended into uh with spotine. And honestly, I have no idea how the how this technical the technical process of this would work because it uh to my understanding is kind of different um processes. But yeah, I think uh we've got to a point where people are realizing the market is probably a little bit tighter than they think. I don't want to make any um speculation on prices uh where they go in the short term because um price forecasts I think are inevitably wrong. But we just need to um step back, take a look at the big picture, think of incentive pricing and whether or not we are there yet. Um right now $1,000 barely covers costs for Western Australian um players, some of them. So if you want this supply to continue producing for the next 3 years, it has to be here or higher. Does $1,000 incentivize new uh phospine incentivize new supply to come online? Barely. 12,000 LC. Um, is it enough for a new brine to come online or new um clay or DLE? I don't think so. So, we're not there yet. It's it's simple when you just think of it in um with your outlook and if you're if you have the same expectations on demand growth that you have. Um, yeah, we we we we're pretty reflective of this moment as a as a result of what, you know, could could be a substantial policy shift combined with, you know, demand and market tightness all at the same time. Like what do you think um like we and also maybe our listeners should be should be paying more and more attention to? >> The fact the fact is that supply growth is all baked in. All right. um people are producing uh are developing mines from the same places where they know that there's been a a deposit for the last 10 20 years. So to me supply is no longer surprising. Demand is where people should spend all their time analyzing and comparing versus forecasts. I think EV adoption is growing even faster than people think. Yes, the US is slow and the the US media dominates headlines. you know, it it uh articles keep coming out of the US that say, "Oh, EV sales are slowing." Makes no sense, right? It's growing. It's accelerating in China. It's accelerating in um uh even, shall we say, less developed economies. They are literally skipping the petrol age. They don't want cars. They don't want petrol cars anymore. They are going straight for EVs. BYD is sending their um 7,000 car uh car carrier ships everywhere around the world. That ship has gone to uh those ships now now they have a fleet. Those ships have gone to Germany. They have gone up north to my neighbor Malaysia. They have come to Singapore. Right? So EVs are being exported all around the world from China now. And I think everybody should focus their attention on demand. It's growing so much faster. Just look out for the um confirming data. That's a that's a really interesting perspective YJ because the the classical capital market uh capital cycle investor would always sort of be taught to focus on supply because supply is in a sense easier to determine because the speed at which you can turn a mine on takes time and then you can build your sort of base from there whereas the demand side needs you in a sense to understand human psychology and these sorts of things. But you sort of come at it from the perspective of there's enough confirming data if if you look backwards which people aren't doing to to give you that confidence to look forward across all the sections of the market whether it's EVs, stationary storage and sort of see that this this is a real sort of trend that's going to continue. >> Well well mate um I literally have a degree in economics and one thing that we actually do say uh in economics is that demand creates its own supply. >> Yeah. Yeah. Lower prices lead to more demand. The the demand >> it's not just about lower prices, right? I mean, if it's a very real thing if humans >> the reflexivity of Yeah. Yeah. the network effects that come from more and more. Yeah. Yeah. >> Yeah. It's not that supply creates demand. I mean, if you have a supply of something, you still have to convince people to want it >> and then the more they want it now, then your supply becomes valued. If you have Yeah. If you have something that is not demand in demand, then you're never going to get a price for it. But if there's a demand for something, it will drive it will change the market to create supply. So demand creates its own supply. >> I love that point, YJ. I' um we we'd love to to give you a bit of an overrated, underrated uh quick quickfire um quick quick quickfire segment. if you're if you're open-minded and willing to uh give us your your salient views on on you know um hopefully I've got like 10 things written down here that I'd love your overrated underrated >> I think we can add a couple as well couple ideas we will the first one's very easy because we know what your response is essentrated underrated >> not not loved enough but yes >> massively underrated is the uh the response yeah >> uh it's not overrated underrated but it's uh one or the other by or Tesla as an electric vehicle maker. Have you got a preference? >> B80. >> Yeah. Uh, undeveloped Western Australian spoamine projects. Overrated or underrated? >> Wow. Um, sorry. Broad. That's a broad broad range, man. >> I know. I know. I said undeveloped. >> Undeveloped. Um, nah, not many big deposits left. Mostly overrated. Sorry. We might have asked you this one last time, but worth getting another take. The uh the future prospects of DLE. >> Um I recently became a little bit more convinced that D could work, but at the same time, it is not easy to um transplant to other um brine fields. Therefore, probably still mostly overrated in uh in most people's minds. I don't think that much D supply comes online in the near term. Brazilian spoimeine. >> Brazilian spoimeine. >> Brazilian. Brazil. >> Oh, >> Brazilian. >> Oh. Uh, yeah. Low cost supply. Uh, we'll continue to produce um for a long long time. >> Underrated. >> Yeah. >> Albamau. Um, broad broad question. Um, nah, neither overrated nor underrated. It's it's in balance. Uh, Hong Kong listed lithium producers. Under read it. >> Yeah. >> How about investing in Chile for for lithium production? >> You really want to get into that? >> All you have to say is overrated. Um uh consolidation probability of Chinese downstream. >> Low. Yeah. >> Uh this one's sort of slightly adjacent, but I know you've you've covered it in the past. Overrated or underrated? Silver. >> Ah, still underrated. >> Beautiful. Uh YJ, I've got I've got none none left, but all I've got is just appreciation for your insights and you making the time to um give give you salient views and analysis. It's refreshing. It's compelling. Um it's of course for us to to evaluate our own assumptions in a in a market that's clearly growing rapidly. Um and yeah, congratulations on your awesome performance so far and we hope you will come back and and join us in the future as um as the market continues to to de develop here. >> Oh yeah, definitely. Thank you guys again um for the opportunity to be on your show. Um just happy that um yeah, now at least we have a bit of a track record to show uh potential investors and I hope that you know this this gets our you know our name out there a little bit more. Thank you. >> Absolutely. Great to chat again YJ. Thank you. >> Thank you. >> Super insights. Super insights. Makes me reflect a lot. Um yeah big big big fan of YJ. Big fan of our partners which make our production possible. Big thanks to them. 100% access mineral services ground support Africa down under and focus by market techch mateu. Now remember I'm an idiot JD is an idiot. If you thought any of this was anything other than entertainment you're an idiot and you need to read out a disclaimer.
Lithium’s True Inflection Point (YJ Lee)
Summary
Transcript
People tend to project in straight lines when uh real growth is exponential. What we've seen in the best market I see forecasts of in 2030 600 800 gatt hours. Well, guess what? We'll probably reach that in 2 years, not 5 years. >> You've been on on many sort of site visits, seeing seeing parts of the world. >> Um well, the only the only traveling I did recently was to Las Vegas uh for the fast markets conference. >> How was that? Oh, it was pretty awesome. My first time in Vegas. Uh, but to be honest, I didn't I didn't really like the experience. Um, I think it's a different Vegas from what it used to be. I hear complaints that um it's all rent seeking behavior um there right now and it's really really true. Everything costs so much and they try to charge you for everything. >> Really? >> Yeah. Okay. >> Yeah. Uh, and the and the hotel, every single hotel, they charge a resort fee of something like 45 or 55 USD a night extra on top of what the hotel already charges. >> My god, >> it must be private equity owned or something. >> You know who doesn't do that? You should and you should come with us to the um Africa Down Under conference here in uh in Perth. I think it's the 3rd to the 5th of September. Pay it, put on a banger. There's um look, to be honest, there's probably more gold opportunities, but uh but Africa a great a great a great producer of of lithium. We're uh we're going to be there. And uh >> you run a transition fund as well, YJ, and there's plenty of transition critical minerals in the great continent of Africa. >> I tell you what, we can probably fix you up with a, you know, with a discounted ticket just for you, YJ, if you critical and I know you're going to drop me in Congo and forget all about me, right? >> Hey, great lithium projects in Congo, mate. Let's not forget about that. >> See, mate, YJ's coming to ADU Africa Down Under 3rd to 5th of September. Get your tickets. They're in the show notes. You and I are going to be there. >> We are, mate. Very excited for this conference. Big thanks to PET for putting this on, mate. I think this is going to be the year that Africa Down Under is. It's It's best year. It's best year ever after growing massively. >> Couldn't have said it better myself, mate. Get your tickets. >> Join us and YJ so he doesn't get dropped in the Congo. Uh thank you so much YJ for um for joining us on short notice. We're trying desperately to understand or wrap our heads around um this anti-involution policy which has has come out of of China. It's it's made a big impact on the lithium markets already. It's it's this is a like a kind of a big thing that we're trying to wrap our our heads around. And um we thought we' we'd speak to you all about what's going on here from from you know the the policy front in China, how that's affecting you know the the mines and the critical mineral supply and and why lithium is maybe maybe quite exposed to you know this emerging um thematic and policy shift in in China. Uh and for the listeners who don't know, this is YJ Lee who runs the Arcane um who's a fund manager for Arcane Capital and uh your fund performance has gone through the roof, mate. You were you were year to date up like 56%. It's a phenomenal phenomenal result. So congratulations on your your tremendous performance so far. We're glad to have your insights um to to to help us learn about this. >> Yeah. Hi. Hi guys. Yeah, great to be back on your show. Uh it's been what n uh 10 months I think since our last episode and boy so much has changed in the lithium uh market. I think uh in the previous episode we were talking about um well the bottom probably arriving and I think we're a little bit early on that but right now I believe we are past that. I think the bottom was in June this year and when when spongy was about $600 a ton and um carbonate was 8 uh,000 and now um you know prices are about 50% higher than that. So >> SP,000 bucks a ton like in in the space of of two months. It's it's truly remarkable. You were Yeah. It's it's amazing. Yeah. >> Yeah. Yeah. I mean at that point in time it didn't look um uh realistic to me which was we had a we had a price where 2/3 even up to 2/3 of the producers in the world don't make money and that is to me not sustainable you know uh for an industry that's growing easily 25 30 plus% per year doesn't make sense that more than half the suppliers don't make money so I think um that probably marked the bottom and now like you rightly point out um with the policies in China coming out a bit more in support of rational marketdriven um dynamics that probably signals um the bottom of the market. >> How do you think about this this anti-involution? It's like the the buzzword of the month at the moment. YJ, is it is it something sort of dominating your thinking and and the conversations you're having as well? um no I wouldn't say it's dominating but um this anti- involution thing let's let's take a step back and understand how um um this whole thing comes about. So China um I mean it's is a is a huge market and it is super super competitive. It is not the case that um um you know like they portray in the west is all centrally planned. It's all um government controlled. Not at all. What happens actually is that there's a central government layer. Yes. Which sets the country policies and then there are individual provinces which kind of act like your states in the US, right? Who have their own concerns, their own financing, their own um uh employment numbers to look out for, their own taxes to cover and um therefore their their incentives might be different from that of the national government. So national government sets the broad country policies. The local governments have to manage their local employment, local economies and then um down to the private sector um which um then has many companies that are fighting out in the market also fighting out at the same time against some of the stateowned enterprises. So it's uh it's it's an open marketplace. Um so I I was kind of describing the the uh story of competition in China right now that was the backdrop and what usually happens is that the government sees a clear direction forward for example 10 20 years ago government says um batteries we are going to be number one in the world in lithium and batteries and that's and that and they set a long-term vision for that before that it was ship building before that it was steel you know so um What happens is that government has set this long-term vision. Then the states, the provinces execute this um in each of their provinces to the best of their ability and uh com and incentivize companies to start up. Usually they incentivize this via um um tax policies and um other other the usual economic incentives. Yeah. Some subsidies, some tax policies, etc. And that allows many many companies to start up and then start competing with each other. And you know, China is a huge place, so many provinces. And when and when this happens, what usually happens is that at the start of any um major policy, maybe 50 to 100 companies get started up competing in this space and then uh by virtue of their competition, the strong survive, the weak die out. Typical Darwinian marketplace. Yeah. So um and this is and by by doing this they gain the skills they gain the expertise they gain the uh market shares and the winners eventually become the strong companies of the future right but the process of doing this creates huge competition um between the companies in each province and between the companies um at the national level that's why we are seeing today um over 50 EV companies in China um the numbers have dwindled over the last few years. Yes. But then um this is competition to the extent that they are all trying to survive and um by driving prices down that has caused um what we um we have a joke you know um everything that Chinese do uh that Chinese produce they turn it into the price of cabbage we call it baitia right so it goes from steel uh to ships to now EVs right they're so so cheap you can have an EV and ooling for what $5,000 Right. So um but this pro process of bringing prices down, competing um all the way uh leads to loss making situations, boom and bust cycles over um over decades and now we are at the bottom of one of these cycles which is for lithium and uh which means that nobody makes money but some players are going to survive and come out the stronger for it and that's that's how it is in the typical ical um Chinese uh way of doing things. >> Yeah. And and that that process I mean the the the competition bit kind of makes sense but one of the realities of the the competitive nature is that there are these these price wars which you know might actually in in some ways be a little bit anti-competitive. The the the focus on this supply side policy anti-involution as I understand it. It's actually looking to to refrain from price wars by reducing supply across, you know, industries, things steel, solar, you know, logistics, even medical devices. And and as a know, as as a result of that, there's a potentially a a mentality or or a cultural shift towards, you know, higher kind of profitability of the businesses um as a as opposed to the the the highly competitive um o over capacity and price wars. Is that is that like a fair characterization of of your interpretation or of the policy? >> Yeah, but what I'm um yes, they are trying to do this, but what I think that um this may not be as successful as um uh we think it's going to be because this is pure market economics, price wars, um making short-term losses for long-term gain is nothing new. Every economy um goes through this. We've seen uh we've seen price wars happen in in western countries in uh industries in the west as well. So it does not mean that this is um uh native to China. In fact what happened with the solar industry like you mentioned a few years ago in um uh during the green new deal uh periods the solar companies were making so much money they all cashed up. The big ones have billions of un in in in the bank. They can they can wait this out. They can they can make short-term losses. They're going to lose half half that stash, but they're going to come out with capacities double treble what they were 5 years ago. So, and that drives down their costs in the longer term. So, I don't see this um uh anti-involution policy immediately um succeeding because it is difficult. you are fighting uh market pressures. Um what I mean to say is that it is natural for for many companies in an industry to compete on prices drive prices even below costs for the short term so that uh that's uh to win the long-term game and no government policy can stamp this out immediately. uh to the extent that yes they might be able to target specific players that run uh at a loss so that they can subsidize them their operations in other ways i.e. CL um uh yeah that could be successful but industrywide uh I don't think it will work for the solar industry and I don't think it will work for the lithium industry. Why J I'm curious to just hear a couple thoughts on on why this has all kind of come about because there there is a bit of a notion that this came about from a cultural type push and it's the the government responding to that and that sort of dynamic through the major cities and the the cost of property rising so much and you know salaries being so competitive and these sorts of things. Do do you see that? Is that how you've sort of inferred this involution or anti-involution policy setting coming about? >> Um it's a little bit too early to make um firm judgments on this um policy. I think um where is coming from? Yes, to some extent. Uh they do see that um this competition has gone a little bit out of hand. Um and it's causing it's causing kind of um how how do I say uh it's it's it's a bit of a downer in terms of um the national um mentality you know um when everybody fights it out so much that nobody makes any money and everybody suffers for it it's not a great place to be. So I think they are trying to change the culture a little bit towards um more healthy um to set the tone for a more healthy uh expectation of future market conditions but I don't know whether that's going to work. >> Yeah. Yeah. And a lot of the the people we sort of spoken with have made the comparison to the supply side reform 1.0 sort of to call it in the 2015 16 period. How do you sort of compare and and contrast the differences now? Is is that a comparison you you kind of jump at or do you think we're in a kind of unique situation here? >> I mean, history rhymes, right? But never repeats itself. Um, back then it was mostly um competition at the large SOE level. Right now, China has become very very much a market um private. uh most of the market power uh a lot of market power has shifted over to the private companies um especially um in the lithium space um should I say and it's I think it's harder to uh you know actually make changes the way they want uh what they want to change because you know it's not a it's not a state so SOE that you have direct control into >> these are private businesses right So yeah, if you're trying to have a supply side policy that is is targeting the private businesses, one mechanism to to to have some input there from, you know, from from the government level would presumably be through these this licensing mechanism. And this is this is the the part of the news flow that is has has really kind of rippled through the lithium equities in the last couple of weeks. Um, and it's it's it's in relation to, you know, China's government revising the mineral resources law and the legislation which outlines that mine registrations and approvals are now down to the Ministry of Natural Resources. And that also means that the local governments can no longer license operations without authorization from the ministry. Um, we we kind of we we saw this a little bit ripple through with with notably the Jangi uh cattle mine, the Lipila mine there. I think you know it's also goes by the name 414 as well. Um how did you interpret that you know series of events as it ties into this you know this this policy as well. >> Um I see it in terms of economic incentive. So um when lithium prices were super high and lipidolite started coming onto the scene in 2122 then the government had no issue with these mines um coming online through whichever loopholes um you know a cow lane granite mine coming online to produce um lepidolite right uh as maybe the byproduct in a way uh the lepidolite being a byproduct but actually was the main economic product of the mine um therefore feeding into supply chains and bringing down the lithium prices so that the battery guys and the EV guys have u can survive and and u dominate the industry for the future. Yes, that's in line with the national um policy and therefore it's allowed. Now um prices have dropped so much that it's that other things become more important right um pollution for example lepidolite is highly highly um pollutive toxic even uh to refine and then you the amount of ore you have to move is simply ridiculous to produce a ton of um um lithium carbonate from that uh tangy mine the TNC war mine uh that CL runs it's a very very low grade mine the grade is 28%. and it's lepidoli you need to basically at such low grades you need to move what 350 tons of ore to produce a single ton of LC makes no sense right and if you want to scale this up uh some people say the the the capacity of this mine is 100,000 tons uh per year I don't think is that at the moment but um that is the that is the longer aim I think do the math you need to move 35 million tons of ore to produce that amount of LC before refining losses. >> It's remarkable. >> So maybe you need to produce 50. Uh yeah. So it it's crazy. I don't think they have a 35 million ton operation there >> and and the amount of pollution that will create will be insane. So now I think other things become more important. Um cheap uh raw materials can be bought in the open market from Africa from all over the world. Um now that now then the local pollution issues uh start coming up. this this one mine the um junky like junky cattle junctiony mine that was operating under a under a kalin license like it was the categorization was a you know a kalin a kalin mine but they were obviously not producing very much kalin or any I think so it was the wrong characterization so the the thing that they've kind of been like picked up on under this new new policy or enforcement of policy is to get that that licensing like to be appropriate there's a different royalty rate between the kalin mines and and a little lip like mine as I understand as well. So it's kind of like a a higher cross cross like a higher cost structure to um to to change it. And then within that same province there's like there's six or eight other other mines smaller scale which um which have to get their own like their own um licensing changed by September when they're they're kind of they're set to lapse. Is that all accurate? like and do you see risk to them being like being being shut down as well or like like what's your interpretation of that? >> Uh to be honest, I don't think anybody knows for sure. Um it's too vague at the moment. Nobody really knows unless you're like super super uh insider. >> Gotcha. So these are the rumors that are swirling around in the lithium lithium WhatsApp group chat. So >> yeah, but I mean I mean let's look at let's look at the bigger picture, right? Um >> we don't need to get into too much of the nitty-gritty. It doesn't matter what the um slightly different royalties for different minerals etc there. Let's look at the bigger picture. CL's mind gets taken out for minimally 3 months right maybe even 6 months >> that takes maybe about 20 30 uh at least uh 15 to 30 kilotons of LC out of the market. If the other mines get taken off for a couple of months uh as well then that's that much supply out of the market. But the big picture is that the lithium market last year was 1.2 into million tons LC this year is probably going to be 1.5 to 1.6 I think 1.6 six um other people more conservative think 1.5 but the bottom line is that the demand is growing 25 to 33% this year every 3 months that the market uh every 3 months the demand is growing at maybe 6% or 7%. Right? So think of it this way. Every 3 months the the world needs to bring a new TNC wall, a new CL like mine to the market to meet the incremental demand growth. Is that going to happen? I suppose when you pave it like that, you're getting in the nitty-gritty of the smaller supply stuff is um is is like less like a less pertinent part of the equation when you think of the supply demand and and you've you've been like constant on this point YJ for a long time that the like consensus is massively underestimating demand here and um yeah I'm keen to just like peel out what like why why consensus is so wrong. Um sometimes they are looking at the narrative. Um the the the story out there is that low prices means uh means that demand is not catching up to supply. Therefore, demand must be slow. But um that's what that's how the the news agencies tend to portray um uh this picture. But the fact is that go back to economics, right? Basic economics and your demand curve. Price quantity. The lower the price, the larger the quantity demanded. Translated into real world terms, the cheaper your car, the more uh people switch to this cheaper model, right? And now we now we see with low battery prices, cars, EVs getting cheaper than petrol vehicles, getting cheaper than diesel vehicles, um heavy used vehicles are are switching over very very quickly because the ROI on these electric vehicles is so much higher. Now, one of the uh things that I've been looking at very very closely which I think um analysts or consensus hasn't really focused on is electric trucks. This is huge. This is a huge market in China. Uh they sell about uh last year the heavy electric trucks in China sold about 75,000 units. This year they on track for 160,000 units over 100% growth year on year. Each of these heavy trucks has a battery 10 times the size of a of a passenger car. And these trucks are going everywhere in mining, in hauling. You know, you even see um uh China trling autonomous um uh trucking in China already. So I think that the demand for uh lithium is a lot higher now that prices are low, which is which I think is in line with economic theory. I don't understand why analysts have u car demand growing in the teens this year. Makes no sense. >> So demand is going to grow gang busters, right? What what does that sort of make you think? >> If demand grows gang busters, we know more supply needs to come online and the supply is going to come online naturally faster from the existing mines that are in production and can expand. And when I think of that matter, think of Liontown. Obviously, they revised their their ability to produce to to is 2.8 8 million tons peranom that they're um currently like like their mining rate is. But we know that that can be like 4 million tons peranom pretty quickly, which means more under more tons coming from underground, which means more ground support is actually going to be required to enable >> the more mining coming from underground. >> And why not use the best in the business when it comes to ground support, Sanvic ground support? >> Sanvic ground support. They're the only the only name you need to know when it comes to ground support, mate, because it can come to your mind in a jify like that because there's distribution hubs all over the world. They've got a team that cares about it and they they provide tailored service, great feedback, great people to order from, great people to to ensure that the product is on spec and it is delivering the results they need. Great great great person in Derek Herd. >> 100% mate. And just like the lithium market growing gang busters, these guys are improving year after year after year, mate. Ground support is not something that just needs to be sort of left in the corner. It gets better by the day. >> You know what the tagline is, mate? Keeping people safe. >> Keeping people safe. Call Sanvic ground support. What one one of the push backs that a lot of people have and I'm really curious to hear your thoughts on YJ is that a lot of this has been subsidyled government incentives tax credits these sorts of things and maybe we've seen some of them sort of peel off. How do you kind of respond to the narrative that it's only been propped up by governments thus far? Mm- um we've seen subsidies fall off in u many many economies and doesn't affect doesn't affect the rate of change of um EV adoption goes up towards um China is now at 50 over% um and subsidies have been falling off year on year >> and the the best component the stationary storage like the the growth there has been I think it's sort of safe to say it's been astounding and and underrated as well and I remember when we spoke a number of months ago, you were pretty you were pretty bullish on on this part of the market. I' I'd love to sort of get your uh reflections on how that's grown versus what you what you had thought back then and where you see that kind of evolving. >> Well, actually, I kind of raised my um best forecasts I think from 10 months ago. Uh I didn't I didn't go back to check the previous numbers, but I think they're higher now. I think uh by 2030 we reach a 1.5 terowatt hour mark from 200 uh just over 200 uh gawatt hours last year. I think this year we are slightly over 300. That's kind of in line with ro motion's estimate as well I think. And to why this is happening is because uh two things one batteries have become so cheap that the payback period on most grid level best is now 5 to seven years. And that's great economics, right? And in China, commercial best has now payback periods of 1 to two years. I'm not kidding you. I learned this from um uh the fast markets analyst. Uh credit to him, Chinese guy. um after his presentation at the fast markets conference I had a chat with him and he told me this what's happening in China is that for the commercial guys they are actually um when I say commercial best I mean smaller scale priv privately owned best systems right >> and what they do is that they charge uh midday when of course prices are pretty much negative and they discharge into the evening peak which is the usual best um operation right but then they also charge midnight and discharge early morning peak and that means that they use their asset twice a day not just once and that drives the uh yield of the asset and therefore the payback period becomes one to two years. With that kind of economics, people sure as hell are putting in tons of best into the market wherever they can. I've not met a single best manufacturer that says that they are short on demand. >> Yeah, that's that's fascinating. And this this part of the market is one where we've seen like a huge discrepancy with the with the people we've sort of spoken with and what their growth assumptions are versus consensus broker. Like a a sort of factor of 2x like some of the the feedback we've gotten is that they think this part of the market is twice as big as what a a heap of brokers out on on the street have have written it up to be. Is is that the sort of >> like thinking you've got as well that the the consensus in in Wall Street or whoever you sort of think about there is way below where it's actually at? >> People are projecting like as opposed to observing actual installation rates, they're they're um they're projecting, you know, the wrong numbers. >> Yeah, of course. I mean, it's it's the typical um thing, right? People tend to project in straight lines when uh real growth is exponential. um what we've seen in the best market uh I see forecasts of in 2030 600 800 gawatt hours well guess what we'll probably reach there in 2 years you know not 5 years and the same forecast error happens in solar I mean go back go back to and that's the other part of the best uh equation that I forgot to mention solar go back to the world energy outlook for the last 10 years all right they their forecasts are always off by a factor of about three. 3 years ago they said that uh last year's solar installations were going to be 200 gawatt. No, it was 600. And to the extent that um they all forecasting linearly, the real growth has been vertical. And now that drives the entire best market. So much solar is being put in the world today. Uh a lot of markets experience negative electricity pricing during the midday. You cannot install new solar without new uh without pairing them with batteries anymore. And just in time, battery prices have come down so much that solar plus batteries now are even cheaper on a kilowatt basis uh kilowatt hour basis than coal or gas. So it all makes sense now. And and if we touch on the the chemistry that's that's really dominating in that part of the market, LFP, is there is there any competition in in your mind there? >> Um, no, no competition there. Um, LFP is cheaper. Uh, it's got more charge cycles than NMC. Uh, great batteries don't really need the incremental increase in energy density that NMC delivers. uh you don't need u uh you don't need a battery to be able to provide uh higher faster acceleration for your for your car because um great batteries don't move. Uh so yeah, LFPs are are the chemistry of choice for best. >> Very. While we're on the the the chemistry piece, YJ, I'd love to get your observations on um like in the leadup to to cattle's like um IPO their the potential like the potent any observations on like um cattle's discourse to the market being talking up sodium ion and then sort of subsequent and and and and maybe maybe you know ensuring that there was an o over supply of production in the market via their their um their own mine which if you if you just take it on face value the It's uneconomic. However, cattle is making money on having lithium price be low and their margin is is um is incremental there. Do do you see any like like are you part of the cohort that thinks that like maybe maybe cattle was was being a little bit disingenuous in in their um in the way that they were talking about sodium and also in in their um in in in the in the supply and margin kind of component of that market. >> Um to be honest, not really. Yeah, I mean I I don't subscribe to every single um conspiracy theory. >> Not not everyone. >> Not everyone. Some of them maybe. Uh I mean to the extent that I think KD is um did run the the mind uh to influence lithium prices globally, I think that's true. >> But uh the sodium ion battery side, I mean I'll give them to be honest if I were K, I would probably develop sodium ion batteries as well because you're you're a large battery company. You can never say you know five years or 10 years down the road which u chemistry is going to become dominant. You have to play um every everything and you have the resources to develop everything and see what works right. Um and if our view of the lithium market um is right that best electric trucks, cars, the demand grows so quickly that lithium cannot um that there's not enough lithium in 2020, even 2026 onwards to meet demand to 2030, then something has to come in and pick up the slack. And the only something out there right now really is sodium. Yeah. So um I think there could be um a use case for sodium to pick up um some of the demand uh that cannot be met via lithium batteries for for example bass. Yes, a sodium uh battery setup will require about three times the land footprint compared to um uh LFPS. But if you're putting bass out in the desert, yeah, I mean you can use three times the space doesn't matter. So if if we focus on the ramifications like we sort of touched on the uh the price response has been pretty pretty quick in in the scheme of things but I think it's fair to say it's not in the interest of the the Chinese government to see lithium prices run away to levels they they got to sort of last time. So how do you think about that dynamic? I know they'd already sort of put a bit of um a bit of sort of influence in the amount of speculation that could take place with regard to to futures pricing and these sorts of things. Do you do you think there's a big role that they're sort of playing behind the scenes in where the lithium price sort of settles? >> Honestly, no. I don't think they are trying to um guide the government on a on a national government level basis. is I don't think they're trying to guide the price of um lithium per se. It's a very very small market and to be honest um if you look at lithium as a percentage of costs uh these days given a huge scale of manufacturing um the raw material isn't um yes it's a significant is some part of the bill of uh materials but it's no longer as large as as it used to be. Now manufacturing scale has kind of um driven production costs down in a in a very big way. So if even if lithium prices were to double from where they are today, go from 10 uh 10 12,000 to 20 10 20 24,000 um per ton LCE, I think the battery market could absorb that. CL and um uh BY have I I think have no real issues raising prices by a little bit to cover this cost and then everybody can um and then there'll be a healthy um uh and incentive pricing um in the market to incentivize new supply to come online. Otherwise, we go into a deficit much much quicker than people think. And >> so, so if we sort of reflect on that point, the the potential supply response, obviously through 22 into 23, we saw a magnificent supply response from an incredible runup in the price. And this sort of supply came from pockets where people didn't think it might otherwise would have come or it came on quicker from parts say Africa and Zimbabwe than others sort of it would. Are there regions that you think might be able to sort of flick on supply or existing minds that might expand supply that you're sort of keeping a keen eye on to to sort of see that this price level maintains? >> Well, we are running out of continents to be surprised from, right? I mean, the only remaining one is um Antarctica, isn't it? >> Yeah, but I mean um looking >> to extract it from the seafloor, mate. >> Well, that's that's nickel, man. People are trying that. Um I don't know how well that's going to go but >> well let's not go there. >> Yeah. >> Yeah. But um yeah it was a small market. Uh 2022 was a very small lithium market. It was what I think if I recall correctly an 800 kiloton market in total. Nothing compared to iron or copper etc. Tiny tiny metal market. We are still tiny. We're still small but it's a lot it's a lot bigger than before. This year if we are 1.6 million tons that's double the size. the market size has doubled. It will not be so easy to influence um the price either way from here going forward. The larger the market gets um the more supply you have to bring online to the market to crash the price. So in next year we are probably in a 2 million ton LC market. You would have if you bring on an additional 100 kilot tons like what happened um from Africa three years ago. Now you now you're influencing the market by 5% instead of the 16% that they used to be and it is not difficult uh sorry it is not easy to bring 100 kilot tons of supply to the market quickly. How they did it in Africa was literally they went to all the outcrops they could see and just started digging. No mine plans no uh very very few approvals just went in started digging and go. Same thing happened in Tangi. We had school children, unfortunately, um the economy incentives were there, go out into, you know, pick up rocks, stuff it into rice sacks, load it into the back of the truck, send it to the refiner. That's what happened. But I don't think um it is easy to influence the market in a 2 to 3 million ton uh market. >> I I suppos I suppose like what we're trying to figure out is so we've had some some supply out of the market. you pave the picture that demand is much like much higher and growing much faster than most the market are is expecting. A lot of the the the people who are have a more moderate outlook for lithium in the short term, they point to, you know, inventories are still very high, but they're probably not focusing on the fact that inventory days is at a local low because the market's much bigger now. Is the market tight enough in your opinion? Like have we like is the market so tight that we're going to see a pretty pronounced um move forward and upward in the price in your expectation? like is are we are we at that moment right now? Is this is this a trend that's going to continue or are we kind of just going to like moderate around you know a,000 bucks a ton of C6? >> Uh I I think you're exactly right that um people are focusing on the wrong inventory numbers. Um absolute inventory levels um yeah they matter but it's the days in in um uh usage that really really matters in a market that's growing um 30% a year. You need 30% more inventory every single year. So that number has to go up and uh you're also right that it's it's um I think it's tightening in a sense that we've not seen uh rejections of shipments like we saw in the last cycle. So in the uh 2020 um lithium ups was it 2020 or 18 um in the previous lithium boom uh boom and crash during the crash shipments were being rejected right from from Australian producers. We don't see that in this market. So something is going on. >> We've heard that too. We've heard that too. There's been no observation of any any caros Yeah. like being um being being pushed back or delayed or anything like that like has been seen. >> They must be speaking with the same people YJ. >> Yeah. Yeah. Yeah. So I mean to the extent that uh and and it's and it's very weird. I'm even hearing um stories of lowgrade uh even lepidolite being uh refined together or blended into uh with spotine. And honestly, I have no idea how the how this technical the technical process of this would work because it uh to my understanding is kind of different um processes. But yeah, I think uh we've got to a point where people are realizing the market is probably a little bit tighter than they think. I don't want to make any um speculation on prices uh where they go in the short term because um price forecasts I think are inevitably wrong. But we just need to um step back, take a look at the big picture, think of incentive pricing and whether or not we are there yet. Um right now $1,000 barely covers costs for Western Australian um players, some of them. So if you want this supply to continue producing for the next 3 years, it has to be here or higher. Does $1,000 incentivize new uh phospine incentivize new supply to come online? Barely. 12,000 LC. Um, is it enough for a new brine to come online or new um clay or DLE? I don't think so. So, we're not there yet. It's it's simple when you just think of it in um with your outlook and if you're if you have the same expectations on demand growth that you have. Um, yeah, we we we we're pretty reflective of this moment as a as a result of what, you know, could could be a substantial policy shift combined with, you know, demand and market tightness all at the same time. Like what do you think um like we and also maybe our listeners should be should be paying more and more attention to? >> The fact the fact is that supply growth is all baked in. All right. um people are producing uh are developing mines from the same places where they know that there's been a a deposit for the last 10 20 years. So to me supply is no longer surprising. Demand is where people should spend all their time analyzing and comparing versus forecasts. I think EV adoption is growing even faster than people think. Yes, the US is slow and the the US media dominates headlines. you know, it it uh articles keep coming out of the US that say, "Oh, EV sales are slowing." Makes no sense, right? It's growing. It's accelerating in China. It's accelerating in um uh even, shall we say, less developed economies. They are literally skipping the petrol age. They don't want cars. They don't want petrol cars anymore. They are going straight for EVs. BYD is sending their um 7,000 car uh car carrier ships everywhere around the world. That ship has gone to uh those ships now now they have a fleet. Those ships have gone to Germany. They have gone up north to my neighbor Malaysia. They have come to Singapore. Right? So EVs are being exported all around the world from China now. And I think everybody should focus their attention on demand. It's growing so much faster. Just look out for the um confirming data. That's a that's a really interesting perspective YJ because the the classical capital market uh capital cycle investor would always sort of be taught to focus on supply because supply is in a sense easier to determine because the speed at which you can turn a mine on takes time and then you can build your sort of base from there whereas the demand side needs you in a sense to understand human psychology and these sorts of things. But you sort of come at it from the perspective of there's enough confirming data if if you look backwards which people aren't doing to to give you that confidence to look forward across all the sections of the market whether it's EVs, stationary storage and sort of see that this this is a real sort of trend that's going to continue. >> Well well mate um I literally have a degree in economics and one thing that we actually do say uh in economics is that demand creates its own supply. >> Yeah. Yeah. Lower prices lead to more demand. The the demand >> it's not just about lower prices, right? I mean, if it's a very real thing if humans >> the reflexivity of Yeah. Yeah. the network effects that come from more and more. Yeah. Yeah. >> Yeah. It's not that supply creates demand. I mean, if you have a supply of something, you still have to convince people to want it >> and then the more they want it now, then your supply becomes valued. If you have Yeah. If you have something that is not demand in demand, then you're never going to get a price for it. But if there's a demand for something, it will drive it will change the market to create supply. So demand creates its own supply. >> I love that point, YJ. I' um we we'd love to to give you a bit of an overrated, underrated uh quick quickfire um quick quick quickfire segment. if you're if you're open-minded and willing to uh give us your your salient views on on you know um hopefully I've got like 10 things written down here that I'd love your overrated underrated >> I think we can add a couple as well couple ideas we will the first one's very easy because we know what your response is essentrated underrated >> not not loved enough but yes >> massively underrated is the uh the response yeah >> uh it's not overrated underrated but it's uh one or the other by or Tesla as an electric vehicle maker. Have you got a preference? >> B80. >> Yeah. Uh, undeveloped Western Australian spoamine projects. Overrated or underrated? >> Wow. Um, sorry. Broad. That's a broad broad range, man. >> I know. I know. I said undeveloped. >> Undeveloped. Um, nah, not many big deposits left. Mostly overrated. Sorry. We might have asked you this one last time, but worth getting another take. The uh the future prospects of DLE. >> Um I recently became a little bit more convinced that D could work, but at the same time, it is not easy to um transplant to other um brine fields. Therefore, probably still mostly overrated in uh in most people's minds. I don't think that much D supply comes online in the near term. Brazilian spoimeine. >> Brazilian spoimeine. >> Brazilian. Brazil. >> Oh, >> Brazilian. >> Oh. Uh, yeah. Low cost supply. Uh, we'll continue to produce um for a long long time. >> Underrated. >> Yeah. >> Albamau. Um, broad broad question. Um, nah, neither overrated nor underrated. It's it's in balance. Uh, Hong Kong listed lithium producers. Under read it. >> Yeah. >> How about investing in Chile for for lithium production? >> You really want to get into that? >> All you have to say is overrated. Um uh consolidation probability of Chinese downstream. >> Low. Yeah. >> Uh this one's sort of slightly adjacent, but I know you've you've covered it in the past. Overrated or underrated? Silver. >> Ah, still underrated. >> Beautiful. Uh YJ, I've got I've got none none left, but all I've got is just appreciation for your insights and you making the time to um give give you salient views and analysis. It's refreshing. It's compelling. Um it's of course for us to to evaluate our own assumptions in a in a market that's clearly growing rapidly. Um and yeah, congratulations on your awesome performance so far and we hope you will come back and and join us in the future as um as the market continues to to de develop here. >> Oh yeah, definitely. Thank you guys again um for the opportunity to be on your show. Um just happy that um yeah, now at least we have a bit of a track record to show uh potential investors and I hope that you know this this gets our you know our name out there a little bit more. Thank you. >> Absolutely. Great to chat again YJ. Thank you. >> Thank you. >> Super insights. Super insights. Makes me reflect a lot. Um yeah big big big fan of YJ. Big fan of our partners which make our production possible. Big thanks to them. 100% access mineral services ground support Africa down under and focus by market techch mateu. Now remember I'm an idiot JD is an idiot. If you thought any of this was anything other than entertainment you're an idiot and you need to read out a disclaimer.