With Laurent Segal and from London and Gerard read from Berlin. This is redefining energy today.
On Really Think Energy tod We're going to talk about the eertrometals like lethium, copper, silver that are going bananas.
Yeah. Absolutely, Ron, It's incredible. What's going on? And I suppose I have to ask the question, I don't know if this is just volatility because of geopolitics or really does a big change in demand. I have no idea, So I'm looking forward to this conversation.
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Back to the show, so we bring a real expert that we've been following for quite some time, a new friend of the show, and it's Matt Firmleay.
Yeah, looking forward to having this conversation with a bad time with them.
On a bit of background on Matt. He is managing director at Battery Metaios Review and he's also partner in the equity firm called air K Equity and he's been following all those metals for the past twenty five years and he has some extraordinary revelation to make.
Well, let's bring him on the show then, Matt, this is great to have you on the show. Looking forward to this conversation.
Thanks for advising me. I've been looking forward to this for a long time.
Maybe just kick off and it's just give us a sense of what's going on. And I got to call it electricity. Commodity is for anything to do with electricity, whether it sill of our copper, the.
Electric metals we used to call electrica metals.
Just a crazy world of volatility and a space tell us what's going on.
It's a really interesting space. Dumb materials are going crazy to the moon, lithium, silver, copper to some extent, some materials haven't budged, things like graphite and materials not doing anything at the moment. So it really is a very very differentiated market. But obviously it's the copper's, silver's, lithiums of the world that are attracting the most column inches
at the moment. And it's nice to see because we've obviously come off a period of two to three years when prices, particularly in lithium are very, very weak and for other battery materials, so it's nice to be in
vogue again. In terms of what's happening, we have a secular demand event, and there are periods when supply catches up with that secular demand event, and their are periods when we move into oversupply, and then obviously we have a price correction, and that's where we were coming from off the back of in lithium over the last couple of years. And then there are periods when supply growth drops away and perhaps demand accelerates and we then move
into a positive commodity price environment. The situation in lithium has been exacerbated by the fact that we are seeing a change in leadership in the battery markets from EVS to ESS and my numbers I see ESS dominating EVS as a user of batteries by the early part of the twenty thirties and being really significant long term event for battery demand.
Yes, Matt. Currently the EV market in term of Relgium consumption is six times bigger than the best. But in two twenty five the EV market has grown by fifteen percent, whereas the best has grown by fifty. Yeah. Clearly, at some point if base continue, those two charts may converte. Now, if you analyze in general any community market, you have
two school of thoughts. The one which is from Jeff Curry talk about supercycles, and I hear him a lot well on the foothiels of the Imalaya, But the thing he has said that for a very long time and most of the time got the timing wrong. And on the other you get the school of Ed Moss, who says the market are very elastic and within two three years they tend to rebalance themselves. So in what camp you see yourself?
I do believe in supercycles, but similarly I do think that Ed is correct as well. If I look back to the sort of China led supercycle in the early noughties, by two thousand and two, two thousand and three, that that supercycle was kicking off at the time, we said that the Chinese fixed acid investment event would last ten to twelve years, but the supercycle didn't last that long. We did start to see substitution in key commodities. We
did start to see supply catch up. So I do believe that we'll see a supercycle, but I also leave it's not going to last for ten years or something. It'll last for two, three four years before supply catches up. There's enough substitution out of the areas for prices to catch up as well.
Let's probably before we go deeper into lydium, let's talk a bit about copper, because God, I love and respect Aba Friedland the greatest miner since Cecil Rose in my opinion, or it's been pumping copper like never. We went from ten thousand dollars a ton to thirteen fourteen, which is a lot. And of course there's you know the Grasberg mine Indonesia that's underwater, win Panama, which has been stopped.
But on the other hand, after a while copper and people are going to switch to aluminium, which is what two thousand dollars a ton. How do you see the copper market going forward?
I agree with you on aluminium substitution. I think the other thing that people don't necessarily think about when they see those big supply demand charts with the gap going forward, So they don't necessarily think about recycling because obviously, as copper prices go higher, it's more economic to recycle more. And historically in periods when we have seen that big supply demand gap, a recycling has come along to fill it in, not totally but to some extent. The big
issue with copper is that we're not discovering enough. We're not discovering enough big operations. So in the medium to longer term there is certainly an issue in the market in the near term. What worries me about copper is from a macroeconomic standpoint, the world ain't great at the moment. From a top down standpoint, a consumer demand isn't great. There's not a lot going on a fixed acid investment, so the world isn't brilliant at the moment, and inventories in copper actually increasing.
Now.
I've been looking at the price inventory relationship in copper since two thousand and two thousand and one. On a weekly sometime as a monthly basis, you see a very close price inventory relationship. But generally what happens is that as inventry's full, prices increase. And that's indeed what we saw in the supercycle in two thousand and two, two thousand and three, when the first sign that's something really important was happening was because inventry is just dropped away.
We're not seeing that in this cycle. In fact, we're seeing inventories increasing. And if you look at global inventories, so what's there in the US, in China and on the LME, they've actually been increasing at the same time that price has and that's very atypical. I've never seen that in a cycle before. So there's a lot of speculative excitement about the medium to longer term in copper.
I'm really worried about the near term and if we have any sort of economic correction globally, there's a big risk for copper prices in my view.
Matt, can we talk maybe next about silver and they can? I understand last year it was like one hundred and twenty five percent and if I look in terms of the biggest industrial use so that it's now solar panels, is that what's driving it or is it just the fact that it's a pressure's metal like gold or whatever. And you know, just how do you.
See that silver is right on the edge of my comfort zone. I'm an industrial metal strategist to always have been. I can pick growth cycles and understand where demand is going for all of these commodities. Gold and precious metals have always been in an area where I haven't really been able to understand what's going on. But in silver at the moment, most of what's happening is because of
the industrial demand situation for solar panels. Obviously, solar panel demands gone ballistic over the last two to three years, and that's really tightened out the physical market. So we have on a physical basis a very substantial supply demand imbalance really over the last seven or eight years. And when I look at the supply demand chart, there's a big deficit. And if I saw that for an industrial metal,
I'd be hugely bullish on it. What we have exacerbating the silver market is obviously there's a lot of undisclosed stocks people with silver jewelry and silver photo frames and silver stuff in their house that can potentially come out into a ball market. And then one of the other things is because on top of the industrial demand for silver. We have a big speculative slash investment elements in the silver market as well. Really is an astoundingly complex market
on the physical side of things. There's a big imbalance on the paper side of things. People are betting multiples of the physical size of the market almost every day. I mean, as we record this yesterday, there's reports of a massive short position on the SHFE in Shanghai, which is bigger than the existing physical market for silver in
a year. You are sort of sitting there scratching your head and going, well, the paper markets seem to they're not too much resemblance to what's going on in physical markets at the moment.
Yeah, And to add to your argument, we're talking about aluminium two thousand dollar paton couple thirteen thousand paton and of course SiO we took in answers, but if you took put it's two million dollar a ton. It's very very expensive, and I know it must have some extraordinary electrical property also that they're put in cellar panels. But I know the Chinese and I'm sure they're working very hard for substitution here.
We've seen thrifting in silver in solar over the last sort of four or five years, and in fact it's a recurring thing and it's built into my models that we will see lower silver loadings going forward. It's definitely issue. I was reading a piece of research that said at one hundred and thirty dollars an ounce, it's no longer economically viable to use silver and solar panels. If you want to look at a physical markets, at industrial markets,
that's got to be the glass ceiling. But obviously if you're looking at as an investment vehicle, similar to gold, then things can go higher than that.
Matt, I can ask you about a really niche market commodity, and that's just electrical steel and obviously this is used for transformers and stuff like that. It's pretty critical and there's a shortage of transformers up. What's your view on that.
It's a really difficult market. And if I hadn't worked to the Hedge Fund for the last five years, I would have had to say I don't know anything about that market. I do know a little bit about that market because I'm aware of the huge global shortage of transformers. But the problem is it's a very opaque market because it's buried the electrical steel divisions are buried in the big steel makers and it's a tiny part of their markets, so you don't really get a lot of information about
electrical steel. But it is a market where demand for transformers is growing very, very rapidly, and it is a market where we're struggling to keep up supply. But the problem is that there are no pure play ways to play that. It's like a sort of one or two percent share of the big steelmaker's business.
Great, let's pish to litium and its consequences on the batteries. The price of litium is more than doubled. Is it going to impack batteries? And I know a lot of listeners investing in batteries and they enjoyed the prices going down on stop for the past ten years. But now all of a sudden, maybe there's going to be a difficult wake up call. So are we entering in a short phase of lytium?
I think it's a slightly longer phase of strength and lithium prices. Lithium prices obviously went up very strongly. That went up to just shy of twenty five dollars a kilo. They've come back down again.
Now.
I'm pleased that they came back down again, because I think they'd run too high too fast. For the battery industry, we don't want volatility and raw material prices. We want raw material prices to go up gradually, consistently and not be jumping around all over the place. And if prices go up very rapidly, and that leads to an increase in sell prices, and potentially that can be damaging to THEESS business, It can be damaging to the EV business, and it can be damaged to the manufacturers as well,
not just the consumers. For the industry, I'm pleased that prices corrected slightly. For lithium producers. A year ago, we wouldn't have even thought or dreamed about lithium prices being this high. So I think the lithium producers are pretty happy with the prices that are in the market at
the moment. My gap feeling is that there are a few risks this year, particularly around ESS, where we started to see inventary build in the last days or nine months or so, and potentially ESS might be more elastic to lithium prices than the EV market is. But beyond that, at the moment. If ess continues to grow as it has been growing, we would likely see quite a significant supply demand in balance over the next couple of years.
Because when we had the spiking and or twenty two and lettium briefly went to eighty don apukilo, there was a lot of people going on the media and hypie either a new technology or a new mine. I'm not going to go over Lake Resource, which has been a bit of a disgrace. The stuff went from zero to I don't know, ninety eight dollar or share and down
back to ten cents or something. But also we had a lot of discussion about Daly directly tium extraction, which has vanished all of a sudden, and now it starts to reappear. And on the top of that, Sorry, my question is a bit long, but now there is the sodium battery thing. So between the new mines, between the new techniques of extraction and between sodium, how is it going to play in the region market.
My feeling is that we'll see slightly shorter cycles. And the reason I say that is because prior to sort of twenty eighteen twenty nineteen, we hadn't really explored for lithium. We obviously knew the salars in Latin America orchu in lithium, but outside that we hadn't really explored for lithium. Since the mining industry has got to act together over the last six or seven years, we've actually seen better expiration for lithium, and a lot of expiration hits on lithium,
particularly hard rock lithium. There's hard rock lithium in Canada, in the US, in Africa, and more in Australia than we perhaps thought there was, and in China, in Tibet in places like that. So it's not that difficult to find lithium. But we are still stuck in this situation that it takes a long time to get new minds in processing well not so much processing plants, but minds into production. The cycle and lithium will be shorter, that upsiple will be shorter in the medium term, for instance.
I'm not too worried, but I do think that we will see hopefully see less cyclicality going forward. Then on to your other question about new technologies, Well, dly did vanish, but it has been bubbling under for a long time and lost of companies have been working on it for the last four or five years. But certainly, as with all these new technologies like solid states, it takes a
relatively long time to bring into commo usage. The first dex China DLE project, which is being operated by Aramet in Argentina, went live last year and it's starting to sort of hit its target. But the problem with DLE is it's not a sort of one size fits all technology. Your salar briane project is very different from your gear thermal briane project, and then each gear thermal brind project is different because it got different solid loading in your
brinds and all sorts of things. So just because DLE works on one project doesn't mean it's going to work on another. DLE has certainly taken longer to roll out than we would have thought, it costs more, capital intensity is really high for DLE projects, and in fact operating costs are coming in in the second and third quarter. So it's not the promised land that we APPS were promised five years ago.
MA Can I maybe just follow on the other part of the rands cart, which is the substitution effect in other words, that we move all the best projects from lithium mind to soldier mine, have you a view on that?
Yes, I do. And when lithium was sort of going up, up, up, I was really worried about it because I get the impression that best projects work according to the IRR of the project. That's sort of what investors are looking at. And if I look at the impact of the higher
lithium prices on cells and batteries and ess projects. So the lithium price basically doubled up to about twenty five dollars a kilo, that's adding something like fifteen dollars a killer what hour in terms of the sell prices increase. And then for a four hour duration best which is doubling up twice on lithium ion batteries, that's a thirty dollars per killer what hour, And that's pretty substantial impact
on the cost of your best system. If you know in China it's seventy dollars a kilowater hour at eight dollars a kilogram lithium. So that's what worried me. That IRR of the projects is going to be affected, and therefore you would see best consumers flipping into sodiumin or potentially into long duration text like flow batteries now at the moment, flow batteries are very expensive, so they're like
two hundred dollars a kit or what hour. If lithium prices go up, and I spoke to a number of people about this, and you get a very different answer in China to what you get in Europe and the US. So in Europe and the US transportation costs, insurance taris, et cetera. They contribute to a higher cost for best which means that your raw material cost is lower. But in China your raw material cost is still a big
chunk of the battery. So it is a concern for me that if lithium prices go too high, too fast, we will see substitution out of lithium mine into sodiumin And the other point to make is that, coming back to your new year outlook call as well, if lithium prices continue to rise and they drive best sell prices up, then you're going to see higher best costs as well.
Will Yo Tinto just budged for the fifth time is merger with glen Core a few years ago invested almost ten billion dollars in lithium in a retrospect. Was it a good move?
To tell you the SITH. I didn't think so at the time, but the more I have had the chance to think about what they acquired, I think it's a cracking move. They've actually acquired optionality in the lithium market. So they bought some really low cost Brian assets, some world class Brian assets in Argentina. And the way that Rio operates is it wants to be at the bottom
of the cost curve in everything. So by going in and buying those undervalued Brian assets in Argentina, they've given themselves the ability to dominate the bottom of the cost curve by going in and buying the assets in Chile, again bottom of the cost curve, and then if prices go up, they've got the slightly more expensive hard rock
in Canada to bring on as well. So actually I think it's a great acquisition by One of the issues that could dole down volatility in an a lithium space would be if we could get more majors into the market. If we had more majors in the market rather than smaller single asset companies, it would give the supply side the ability to manage itself better.
I actually go back to almost what Lauren said at the very beginning, really, is this a supercycle or not?
Yeah, I believe it is. I believe it's a supercycle in terms of demand. There's all these charts out in the market that say we're going to have to mine more copper in the next fifteen years than we've mined up to Here, we're seeing demand for a lot of these niche commodities, niche products like antimony and tungsten and whatnot that we really haven't seen demand for. So it's a supercycle in as you said at the beginning, electrical commodities,
electrical metals. But it's very different from the last supercycle. So the last supercycle was the fixed ass investment supercycle because of China, and it was big and steel and iron ore and all of these sort of commodity commodities. This is more focused on specialty materials. But similarly, I do believe it is a demand based supercycle.
Yes, And maybe to conclude last question, the US Administration has recently announced a project called Vault where they're going to put twelve billion dollars, which is a lot if you consider that the value of the US Strategic Petroleum Reserve is bulow thirty billions, so that's a lot to acquire a certain number of those materials and also rare earth and stuff like that. So what's your view on this project Vault.
Yeah, my colleague had client has done a lot more work on strategic stockpiling than I have. It can work if its target is to minimize volatility in the market, if it's managed well and they bleed material into the market when prices are high and they buy it when it's slow, and we have to see if that can work. But it's nice to see governments being more proactive in the commodity markets. The jury's house in terms of how effective it's going to be.
Well, Matt, thank you very much for coming on the show. I'm also an avid listener of the Recharge podcast you do with our friend Comma Coleiery, where I really learned a lot, so I advise our listeners are interested in that the pic to listen to Recharge and yeah, the story continues.
Well, thanks very much for the invite. I really appreciate it. I read avidly the articles you guys put on LinkedIn and everything, So yeah, it's great to talk to you.
Thanks a lot.
Well, it's a treat to have. I guess like Matt, because I can feel I'm more intelligent than half an hour ago.
Oh yeah, I agree with Janna, And actually, to be honest, I haven't been keeping close enough eye on what's been going on there in the commodity space, let alone the electrical commodity space, which is obviously the and while both of us are working. So yeah, great to have more.
Now, what is very interesting is the substitution effect. Yeah, it's the fact that both in copper, in silver, and in lithium, at some point the industry managed to reinvent themselves and reinvent its supply chain when the prices of or metals are too high. It's when nickel and cobalt when ballistic five years ago that lydium phosphate really took ofugh. Right now, prices of lidium are high, but they are
not crazy. I but if the producers of batteries start to feel that it becomes tight, that's where the development of sodium batteries is going to come, and it's going to come fast.
Yeah, it's going to come craft as well, because at the end of the day, it could be equipped a lot of these letterumine lines pretty quickly and to make the mint sodium mine so un much on this you have to keep an eye on that lithium price. And I think there was another thing that I wanted to say as well about it. It's not just price as well, because the thing about sodium is it's got other benefits and a particular in around in safety, which might sort
of make it more interesting. Particular I was thinking in a domestic area and stuff like that. So yeah, it's going to be very interesting to see what happens in the space in the next twelve months, but even beyond that, in the next two years.
You know.
Yeah, although sodium being less dense than lithium, the battery is going to be bigger, which of course is a problem for cars, but it's not really a problem for best. It's not a problem for best, right, Yeah, even considering I look at batteries done like three or four years ago, you know, like hundred mega what and now I see the footprint and it's crazy how much it can pack
more in a tiny space. So you know, even if sodium you need to double the size, you'll still be less than some batteries done with litium five years ago. So yeah, that's good.
Yeah, and I suppose there's I think the other thing I took out of it really is it all goes back to the man for the end products, whether it's solar panels or bacheries or the grid. We're in a world where we're electrifying everything and these are key technologies. So I take away from it as well that this is structural, you know, and that this growth copy here for many years in front of us of all.
Yes, But on the other hand, a lot of copper went into China real estate boom, which is not there anymore. So at the end of the day, there is so much lack of consensus, even among the best experts. Those guys took in their books that it's really hard to establish your consensus. Well, two things before we close up. The first is Accord by Jeff Curry that we mentioned in the podcast, but maybe you want to say something about him.
Yeah, and Jeff Curry listen. At the end of the days, we had a commodities in Golmo's acts for many, many years, and he's now gone on the investment side with Carlisle.
Yeah, and he produced a report last year which was very well received called the Usual effect. But he said this wonderful sentence spot prices, solve surpluses, long term contract solve shortages. Yeah that's good. Yeah, yeah, that's a good one. And before we leave, we want to salute our friends at the Volta Foundation who last months put their Bible out seven hundred and fifty pages on everything you want to know about batteries from supply chain to technology, to
industries to government. It is online. We're going to put the link in a note. It is phenomenal. So thank you very much to the Volta Foundation.
For the Bible of Batteries.
Absolutely okay, Jah, was a great conversation and I took to you next week looking forward toard.
Thank you for listening to Readefining Energy.
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