Lithium and lithium stocks are going through a soft patch.
PLS Group (ASX:PLS), for example, is down 21% over the last month. PMET Resources (ASX:PMT) is down 16%. Liontown Resources (ASX:LTR) is down 28%.
Arguably, this is no more than the usual volatility we see in commodity-related firms. It’s also no coincidence that lithium shares peaked at the same time as the lithium price in May.
It’s now tanked 30%.
Why this is, nobody can be certain. Lithium fundamentals can be very hard to gauge because the market is opaque and so much of it is based in China.
As it happens, Elevra Lithium (ASX:ELV) released an ASX update last Friday. Its North American lithium operation is in Québec, Canada.
It’s interesting to note that the company only received US$919 ($1,323) per dry metric tonne for its spodumene because of a lagged pricing mechanism in its previous agreements.
PLS had a forecast price of $2,465 per tonne at the company’s presentation in June.
Elevra says its sales will now get the spot market price from here on. It also gave no indication about demand weakening.
Recently, another ASX lithium stock, Core Lithium (ASX:CXO), did a capital raising and included this projection on lithium demand as part of its presentation:
In other words, the current lithium dip doesn’t look very notable if you think five years ahead.
Here’s the other thing ….
The diesel market is in stress currently. Russia, the second-largest diesel exporter in the world, just banned further exports because of the shortage at home.
The Financial Times reports:
“Russia’s announcement on Wednesday came just as trouble flared up again in the Middle East, with [US President] Donald Trump declaring the ceasefire between Iran and the US ‘over’. Shipments of diesel and other products through the Gulf have again slowed to a trickle, due to the threat of further Iranian attacks in the Strait of Hormuz.
“The double hit to diesel supplies saw wholesale prices in Europe soar, with their premium to crude oil reaching a high of US$60.70 a barrel on Wednesday, as traders rushed to get their hands on tightening supplies.”
Diesel is the equivalent of US$135 ($194) a barrel right now. The world’s largest exporter, the US, has about 100 million barrels in storage, which is a 23-year low.
Now we have the Iran issue potentially dragging on indefinitely.
What does this have to do with lithium?
The longer and more expensive diesel and other refined products from crude oil stay, the more incentive the global economy has to switch to electric vehicles.
It’s not just cars. India and the rest of Asia are switching their famous tuk-tuks to electric too.
The next big market for lithium to encroach into is electric trucks.
In China, 30% of heavy trucks sold are already electric, according to the Financial Times.
The key to making them viable as part of the transport infrastructure, at least for now, is the ability to swap batteries in and out. Battery company CATL has 2,000 swapping stations in China and is trying to export the model to Europe.
This is important for diesel use because trucking is 17% of demand.
The economics of diesel over this model gets worse the higher diesel goes. As it is, there doesn’t seem to be a quick solution to the high diesel price because the US is already stretched to the limit and neither the Ukraine nor Iran conflict looks like ending anytime soon.
That gives lithium a long-term boost, and suggests that, all else being equal, lithium shares could bounce back sooner rather than later.
Write to Callum Newman at Mining.com.au
Images: Core Lithium
