In our EGS and Climate report yesterday - Lithium – A “Special” Commodity For Now – Adding To Inflation – we talked about the current spike in lithium pricing but at the same time talked about the likelihood of lithium moving from famine to feast over the next few years and the potential for significant price volatility. This is a product for which demand growth is very high but supply growth is also very high. There are also some very divergent views of supply-demand and we highlighted a view that was bearish for lithium in yesterday's piece and show a bullish one below. The automakers and battery makers want to promote the idea that lithium will remain in short supply, as they need to encourage as much investment in lithium production as possible. While the incumbents want to keep pace with growing customer demand, they would like to see fewer new plays and are naturally conflicted in what message they want to give. We foresee supply and demand falling in and out of balance several times over the next 10+ years.
We talked a little about recycled polymer pricing in our ESG and Climate report yesterday. Recycled polymer pricing is rising relative to virgin polymer pricing (see chart below) and is likely to continue to rise unless hydrocarbon prices push virgin resins materially higher. Demand for recycled polymer is growing quickly and more quickly than supply, and we expect this to be reflected in an increased premium, barring more raw material inflation. Recycling is a fixed cost business – each step has a well-understood cost and companies are innovating to try and lower the cost of each step, but as so many different stakeholders are in the chain, it is a complex problem. One of the reasons why see the LyondellBasell/Suez venture works in The Netherlands is because Suez controls the waste in a region where recycling compliance at the household level is high. Despite this, it has taken a couple of years to get to the volumes needed to make the venture adequately profitable – mostly ensuring enough pure recycled polyethylene and polypropylene makes it to the facility. If polymer buyers are willing to cover the full cost of recycling in terms of the prices they are willing to pay, more material will become available – if LyondellBasell/Suez can demonstrate that they can make money when all the stars are aligned, it will likely encourage them to work with other municipalities in other parts of Europe (first) to see if they can replicate what they are doing now. In our view, all of the other advertised recycling programs are very small, very focused on niche applications, and don’t move the needle.