Lithium prices keep rising. We refer back to some work we did on the subject several months ago, where we predicted that lithium was likely to be a cyclical commodity - eventually. Right now we see demand for new EVs, demand to fill the supply chain for new EVs, and demand to fill the supply chain for new battery factories – and consequently, demand is likely overstated relative to the number of EVs leaving production lines. In lithium’s favor, EVs are surprising on the upside in production and sales, but this will add to the need to fill supply chains. We do not see the lithium bubble bursting soon, but we do not see enough barriers to entry for lithium to protect the product from overbuilding. There are many dilute lithium sources, and high prices could allow for some high-cost options to move up the learning curve and become future low-cost options.
Source: Bloomberg, C-MACC Analysis, April 2022
Otherwise in today's daily report, we note that the BASF strong first-quarter report is backward-looking, and in the release, the company gives no forward guidance – we will have to wait a couple of weeks for that. For the Europeans, we see a second-quarter challenged with trying to keep prices moving with costs against a backdrop of lower consumer confidence and likely lower spending at the consumer level and slowing spending through the supply chains as everyone gets comfortable with inventories. BASF’s stock rose on its 1Q news yesterday, but we would be very surprised if guidance when it comes, is not very cautionary and sends the stock the other way. As we noted in our Sunday Recap last weekend, we are increasingly nervous that consumers on both sides of the Atlantic will pause in the light of greater uncertainty, higher prices for staples and higher borrowing rates. We see this as quite positive for the medium term as it might allow many of the materials suppliers to catch up with demand, take some of the pricing heat out of the market, and allow many of the new energy or new material initiatives to get projects moving with greater certainty around materials and labor costs and availability. For chemicals, a slowdown would inevitably be seen by the market as negative, as it would be for all commodity and material equities, but we see it as creating yet another uncertainty in the minds of those considering capital spending based expansion in the sector, and consequently supporting our medium-term mega-cycle thesis.