It’s been a disappointing year for the Li sector that’s for sure...I believe it is because of a few reasons:
1. The Li sector went on a massive run over a short time. As they say: nothing goes up in a straight line forever...so perhaps a natural retrace in Li prices and in the sector was likely. Though IMO we are way past this and are now in a well and truely oversold sector.
2. Morgan Stanley’s damning oversupply report at the start of the year, seemingly based for the most part on SQMs ramp up, IMO had a massive effect on market sentiment for the sector. Incidentally, many analysts argue and disagree with this report, and given the recent developments with the Chilean government and possible water restrictions, will be interesting to see what happens there...
3. Reduction in manufacturer subsidies by the Chinese government. As a result of this, it seems a survival of the fittest scenario has been playing out in the Chinese domestic market, with the bigger, more profitable, more established manufacturers surviving, and those who perhaps relied too much on the subsidies starting to fall to the wayside.
4. Possibly as a result of number 3 above, there has been a battle royal for market share in the Chinese domestic market. It’s been reported that producers from the Qinghai salt lake region and the salt lake region of Tibet have been continually offering product at lower prices, in an effort to drive out those with higher costs. As a result, the Chinese domestic price for lithium carbonate has been dropping, and so to has consumer demand. It’s been reported that some consumers are now waiting for a bottom to be confirmed before they start buying again.
I think these salt lakes may start freezing over around November, and could stay frozen for 3-4 months. Welcome news IMO
5. It’s been reported that many cathode departments in China have reduced production. This has resulted in a decrease in carbonate demand, resulting in lower carbonate prices.
It seems the Chinese government wants faster charging batteries, and batteries with greater driving range. From the translated Chinese articles I have been reading, it seems the Chinese are quite committed to a high-nickel cathode lithium battery, and the development of solid state lithium batteries. Sounds like these batteries could hit the market quicker then some may be predicting...
6. It’s been reported that some of the biggest fish in the Li/EV sector have been subject to shorting. Although this doesn’t effect the little fish directly, IMO if the big players start trending in a direction, to me it makes sense for the little guys to follow...
THE GOOD NEWS!
It is September.
Traditionally, the ‘production and sales season’ of the Chinese domestic battery market begins in September.
As Anthony Tse of GXY said last week, the second half of the year typically far outperforms the first half of the year.
For the most part, for the last 3 years Li stocks on the asx have performed pretty well during 1st Sept to 31st Dec.
Below is a post i made a few days ago about how some Li stocks have performed during Sept to Dec over the last 3 years:
https://hotcopper.com.au/threads/an...4376189/page-68?post_id=35272343#.W4z3k6TSWEc
Admittedly, given how the sector has performed this year and the heights it has fallen from and the length this decline has gone for, IMO it’s a steeper hill this time around in terms of a trend change. But i remain hopeful and confident it will come
At the end of the day: if nothing can go up in a continuous straight line, then surely nothing can go down in a continuous straight line either
All IMO
GLTAH
