Goldman calls the end of the battery metal bull market – The Average Joe
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    Goldman calls the end of the battery metal bull market


    May 31, 2022

    Thanks to a massive surge in commodity prices, coal may be the most desired gift this year. But governments and car manufacturers prefer a different type of commodity — lithium.

    Strong demand for battery metals

    Prices of lithium — a key material in electric vehicle (EV) batteries — soared nearly 400% in the past year. The rise in EV demand has created a massive shortage, and new lithium projects were delayed or paused during COVID 1 deposit casino

    • Investments in downstream (i.e., processing, manufacturing) have far outpaced upstream (i.e., extraction) — leading to a bottleneck in one area of the supply chain.
    • Global lithium extractors — Lithium Americas (NYSE:LAC) and Livent (NYSE:LTHM) are up 60% and 62%, respectively, in the past year.

    Elon Musk called these levels “insane,” and carmakers have reacted to the rise in lithium prices by raising car prices. Tesla is even open to buying a mining company to secure supply.

    The problem is more prominent in China — which makes 80% of the world’s lithium batteries. In March, China’s government met with market players to discuss bringing down lithium prices.

    Warning of a reversal ahead

    Commodities are highly cyclical — where prices are prone to booms and busts. With battery metal prices seeing record highs — where do prices go from here?

    Goldman Sachs sees a sharp correction and an end to the bull run in battery metals — cobalt, lithium and nickel — expecting prices to fall over the next two years (BBG). GS expects:

    • Lithium prices to fall over 60% to $16K per ton by 2023.
    • Nickel prices to rise another 20% this year before falling.

    While GS is bearish on near-term prices, they see strong long-term prospects that could set the market up for a “battery materials super cycle” in the second half of the decade.

    This is good news for the EV industry — which has been dealing with rising material costs, labor issues and lockdowns affecting manufacturing.

    Investors: Different opinions

    But not all analysts share a bearish view. Citigroup doubled its lithium price forecasts, and Macquarie Group analysts think we could be in a “perpetual deficit” (BBG).

    • Getting demand and supply right is difficult, so commodity prices tend to rise above or below their equilibrium price.
    • Ramping up lithium projects can take up to a decade — and miners often ramp up production late due to shortages.

    We’re in the early stages of a multi-decade-long EV transition, and if GS proves to be correct, investors may have better entry points ahead.

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