Lithium prices are on a tear this year…
Industry experts at Macquarie note that the market is in surplus, which they say will last until next year. But then they expect supply to go into deficit and think there could be “material shortages” by 2025. They’re forecasting a 30–100% increase in prices over the next four years.
Sounds great.
So why have I been writing in my publications and stating on financial media that lithium isn’t rare and that speculating on it is risky?
Because that’s what I think.
There are, I know, other views.
In fact, a reader wrote to me at length about this. With his permission, I’m going to quote, and respond to, his challenge. I think the dialog may be of interest and use to many.
Reader:
Many times you’ve stated your bearish views on lithium and the reasons for them, claiming oversupply as if it were an indisputable fact. Yet over the past few months, lithium prices and most junior lithium companies have soared and remained there. So in recent months, “happening now” has happened much more for lithium than it has for the metals you’ve been bullish on. The lithium companies I follow have maintained their >5x gains—better than the “irrational exuberance” experienced by some uranium juniors a few months ago. Otherwise uranium hasn’t been in the “happening now” category during the time you’ve been bullish on it.
Me:
I agree that lithium is “happening now” in 2021.
It fell for years below that, however, despite the surging EV narrative. I don’t think I’ve been wrong to point out lithium’s abundance and declining price until now.
I also agree that uranium stocks have been subject to irrational exuberance this year and have said and written so many times. But that lithium prices have outperformed uranium prices this year isn’t relevant to deciding whether or not to buy lithium stocks.
Reader:
Fortunately, I wasn’t influenced by your take and made excellent gains, so no hard feelings or sour grapes. No doubt there are those who were influenced by your anti-lithium views who feel differently. I was, however, influenced by lithium industry insiders who were all very bullish on the short-term prospects for much higher lithium prices based on their views of supply-demand fundamentals. They (and I) have been proved right.
Me:
Congratulations to you and them. No hard feelings indeed.
But I do think it would be a mistake for anyone to feel angry with me for my “anti-lithium views.” In the first place, I was right for years. In the second place, I never said lithium prices would not rise again—just that high prices would be the cure for high prices. I also never told anyone to avoid lithium at all costs or to sell their lithium stocks.
What I did write in My Take, in recognition of prices starting to pick up earlier this year, was:
“Lithium remains an essential part of the new energy paradigm. Unfortunately for speculators, it’s not rare. Even more important is that the big producers can greatly increase their output. That’s why high prices tend to cure high prices very quickly in this space—and they do it faster than lithium explorers can build new mines. This is why I’m generally not interested in lithium plays. But if I did want to go there, I would go for the existing big producers, not any junior explorers or developers.”
As you can see, I wrote what lithium stocks I would buy if I wanted to speculate on this metal.
That I declined to do so myself is not the same as being anti-lithium.
Reader:
You’ve been adamant that lithium is not rare and supply can be rapidly increased; does your argument not also apply to some of the commodities you’re bullish on, such as uranium, oil, and iron ore? Yes, like rare earths, it isn’t rare, but also like rare earths, it’s not easy or even possible to quickly bring supply to market, something all lithium experts seem to agree on.
Me:
Yes.
The same reasoning does apply to other minerals and I’ve said so. Uranium in particular is abundant. It’s such a common byproduct, it’s often a nuisance. This is why my uranium thesis is not one of high prices forever. I’m speculating on a coming uranium spike that I plan to profit from and move on.
This factor is also why I’ve warned about expecting high oil prices to last after the post-COVID-19 surge.
I deleted all my files from my work back in my Casey Research days, so I can’t document it, but I remember wring about this in my first articles about the looming lithium boom some 14 years ago. My thesis then was that the major producers would not ramp up until after prices had already risen—and that ramp-up would take years. Until then, juniors with great stories could soar.
I picked Western Lithium Corp., which, if I recall correctly, tripled in share price over the next few weeks. So I took profits. I think their project has yet to become a mine, so I have no regrets about booking the win and moving on.
What’s different today is that the major producers are not waiting for higher prices to increase capacity. They are already expanding. Other mines have come online and more are on the way.
Might there be a shortage for a while?
Sure. But I don’t see the same degree of potential squeeze that I saw back in 2007.
Reader:
Your favorable view of brines over other lithium sources also doesn’t accord with the views of lithium experts. Again, they’ve been proved right by the companies involved with these other sources outperforming the brine companies. Considering simply the cost of production without all the disadvantages of brines is myopic.
Me:
I’ll stipulate up front that I’m not a mining engineer or metallurgist.
That said, I was right when I warned years ago that the major producers would take care of high prices. As a speculator, I think it’s reasonable to have that same concern today.
As for brines vs. hard-rock deposits, sure, if I wanted to speculate on lithium, and if a hard-rock project could show me projected returns equal to or greater than those of typical brine operations, I’d be interested.
Reader:
Re lithium prices, why did you get it so wrong? Why were your views diametrically opposed to lithium industry analysts/consultants such as Roskill, Joe Lowry, Howard Klein, and Rodney Hooper in addition to the presumably more biased views of many lithium company CEOs? As you appear to have been silent on the topic of the recent lithium price increases (other than implying it’s “irrational exuberance” in a recent interview), a response in your Q&A is warranted.
Me:
What did I get wrong?
Unlike market gurus who predicted last year that gold would go back to $1,000 or up to $10,000 and so on, I never said that lithium prices must go lower or that they would never rise again.
If me not saying in advance that lithium prices would move sharply higher this year was a mistake, then fine, I was wrong. If you want to say that me missing out on the great lithium plays you’ve made money on makes me wrong, then sure, I was wrong.
But I can’t kiss all the girls.
And I’m sure that if I made a habit of investing every time experts say that whatever metal, commodity, or other asset they favor is going higher soon, I’d lose a lot of money.
This is not to say that I dismiss all experts. The trick is finding impartial experts. Macquarie’s projections impress me more than those of any lithium industry insider.
But it’s true that I’ve never been afraid to disagree with experts. Even the most knowledgeable experts can be wrong—myself included.
One thing I’m sure of: it’s prudent for speculators to assume that all lithium company projections are the rosiest possible.
Reader:
Furthermore, some rare earths have also had substantial price gains as have the companies involved with them. Yet you’ve been bearish on these, again in opposition to many rare earths insiders who saw very favorable short-term fundamentals. You were also not bullish on copper and nickel until after their prices shot up. Although you may not be interested in capturing early price gains, no doubt many of your readers are.
Me:
I leave it to my readers to decide for themselves which minerals they want to invest in, and which companies. This is specifically why, as regards both lithium and rare earths, I’ve written that I’m out—but “here’s what I would do if I was bullish…”
I know I can’t please everyone all the time.
If I went after more early gains, my clients who favor high-stakes speculation would be happy—but those uncomfortable with the risks would not be.
Also, the consequences for a private investor who buys into anything early are limited to his or her personal results. For me as a person whose guidance many others rely upon, the consequences of going long before trends are established—and getting it wrong—are very different.
It may not maximize returns, but I’m very cautious about doing anything that might hurt a lot of people.
For this reason, I actually expect many of my clients’ results to be better than mine. They don’t operate under the same constraints I do.
Reader:
Being diversified into elements that you’re bearish or less bullish on has enabled me to realize good gains while gold and silver companies have largely languished. If I’d only been in gold, silver, and uranium, sure I would have still had gains in some uranium stocks and from the short-lived gains in some silver stocks, but would have missed out on a whole bunch of other gains, e.g., lithium, manganese, helium, and REE companies. Not owning undervalued elements companies during a commodity bull cycle and thereby foregoing profits when they unpredictably spike isn’t my idea of rational speculation. (BTW, neither does not holding altcoins when they were obviously beginning a bull run and subsequently making some spectacular gains.)
Me:
I think it’s great that you speculated based on your own independent judgment. I congratulate you on your success.
But I have no regrets about missed opportunities.
Maybe I am a mutant tiger-wolf after all; I just don’t seem to feel FOMO the way other investors do. (I’m much more prone to FODO.)
I don’t claim to know the future.
I’ve never said I can predict which metals or stocks will do the best. I claim only that my method makes money over time.
Missed opportunities are not actual losses. They subtract no cash from my bank account. And, as above, I’m very reluctant to make “bold calls” that could result in major losses of capital for a lot of readers.
If I had a marketing guy, he’d probably shoot me for saying so, but I think it’s fair to say that during any raging bull, my cautious and disciplined approach is likely to underperform compared to those who swing for the bleachers.
I also think my approach results in far fewer losses when—not if—things don’t go as hoped.
Frankly, I may not be the best source for anyone looking for the most exciting speculative investment ideas on the markets today.
For anyone who hates losing money and wants a balance of risk and reward, however, I may be just the wolf they’re looking for.
The bottom line here is that I write about what I do with my own money.
But I know that others will want to do different things with their money, so I do my best to offer guidance with that in mind as well.
In fact, while the central feature of The Independent Speculator is a portfolio of stocks I’m putting my own money into, there’s a secondary portfolio of stocks for those with higher risk appetites, called the Buy If You Dare list. There’s another for those looking for bigger, safer companies called the Go To list.
I should say, however, that neither of these lists includes any lithium plays at this time. That’s not because I don’t see the rally in lithium prices this year. It’s because, with lithium still in oversupply, I’m concerned about lithium prices going suddenly into reverse. If the experts are right, and the lithium market does actually go into a structural deficit, I’ll be more interested.
Until then…
Caveat emptor,
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