Lithium Market Insights with Y.J. Lee

Welcome back to Rockstock Channel. It is Tuesday, October 29th, seven days away from the U.S. election, which we won't talk about too much. This is a Rockstock recap, but rather than just Rodney and me, occasionally we have a buyer sell side analyst guest join the conversation, and we are very happy to have for the first time Y.J. Lee at Arcane Capital. management or capital advisors out of singapore uh we'd encourage all of our viewers to follow uh yj on x he is at usually yj lee uh he i've been following him for a bit uh he's responding to some of our friends who kind of cover the lapidolite market um you know and china like so the lithium market over the past few past year in particular which caught us by surprise was what was happening by Chinese companies in China and in kind of private companies in Africa. And Y.J., I think, may have some additional insights on this. But Y.J., we saw you first on the Money of Mine podcast maybe a month or so ago, and then you presented at the one-to-one conference in... I don't know if it's Hong Kong or Singapore. Rodney and I have a very good relationship with one-to-one. I moderated a panel last week in New York. Rodney is going to be in London in about a week or two. He'll be moderating a panel and have some fresh views there. Actually, he'll be presenting and participating in a panel. So we will actually have the one-to-one panel I moderated. We'll be publishing as a video sometime next week. But just wanted to... kind of mentioned that. But overall, we're going to play some snippets of you from that one-to-one presentation. I don't want you to regurgitate the slides there. By actual installations, solar has gone absolutely ballistic. In 2017, 2018, we were talking about 101, 106 gigawatts being installed across the world. And last year, that jumped to 444 gigawatts. How do you add more solar when power prices go negative, right? The only way to do so is by putting in battery storage. You have to load shift this excess capacity from peak production period to peak demand periods at the end of the day. To install just one hour of storage in 2030 takes more lithium than is being produced in the entire world today. Electric bus has a battery about five to six times that of a car. And we forecast about 400,000 such electric buses to be sold by the end of this decade. If we want to do one hour of storage, we're going to use all the world's lithium being produced today. There are simply not enough mines in the world to deliver that kind of supply. Under the current low lithium price environment, companies globally have cut back supply for next year by 17%. and for 2026 by 21%. The large caps are down 67%, the small caps are down 80 to 90%. If you want a bottom fish, this is the time to do so. Lithium demand is severely underestimated. Supply growth has been postponed and still continues being postponed, and battery storage still requires lithium. There is no alternative right now. Solar demand should trigger a price spike. There's a lack of substitutes. and it is very difficult to increase supply. Fundamentally, you are outlier bullish lithium. You know, you have a 4 million ton lithium demand forecast for 2030, which is higher than Arcadium's upgraded lithium forecast from their investor day, which was at 3.5 and is higher than, you know. album all which had been at 3.7 they ratcheted down to 3.3 uh but i think broadly to summarize why you're so much more bullish uh and it's a function of energy storage solutions which rodney has also been outlier bullish on uh solar in particular and you know but also ev trucks buses and other kind of large format uh since you're one-to-one uh This is Rockstock Recap, so we do want to talk about the current news. I mean, since your one-to-one presentation. tesla's reported results which were great i don't know if you've analyzed those but energy storage was excellent there but there's also um you know expectation on a on a cheap car you know coming out next year but they didn't give great details on it uh you know we had a deal aramette you know in the dle argentine space bought out their chinese partner qingshan which was seemed interesting we could talk a little bit about that from a valuation perspective and what the read-through might be. And, you know, Minres has been in the news about Chris Ellison. We're not going to talk too much about that, but it has created, you know, a fair bit of volatility. This time last year, Western Australia was in focus from the lithium space in terms of M&A, you know, Hancock, you know, and Azor and SQM. But... Western Australia for much of this year has just been supply reductions. And then when it comes to like Tang Shi, Kwanada, and Kemerton, significant kind of scale backs. And on my panel at One to One, a resource capital analyst was actually talking that distressed opportunities in the current market might be picking up. You know, actually Albemarle. and or Tangshu divesting of those properties. So there's quite a bit of shine off of the Western Australian lithium story, although obviously Pilbara is doing okay from a cost side. We've also had some earnings that have come out. So long intro. Rodney has a few questions. I don't know exactly what the agenda is, but YJ, why don't you just kind of introduce yourself a little bit and. maybe make some comments and observations on some of the things I just referenced. Okay, cool. Hi, guys. Thanks for having me here. Yeah, my name is YJ. I'm a fund manager based in Singapore. We manage, well, with Arcane Capital Advisors, we manage two funds, one based in Luxembourg. That's called the Solar and Sustainable Energy Fund. That's a... broad renewable energy fund. It's invested in everything from solar to wind to EVs to batteries, lithium and all the supply chains. This fund has been around for about 15 years now since 2009. We've kind of outperformed the green indices by about 9 to 10 percent per year over these 15 years so that's kind of our track record. And recently in Singapore we launched our second fund. It is called the Arcane Green Metal Fund. This is a fund that where we invest purely on the miners that produce the metals for the energy transition. So everything from lithium to nickel, cobalt, graphite, silver, copper, these are the metals and the miners that we investigate and we invest for this portfolio. So we have these two ways to play the overall energy transition theme. Okay, great. And you've had good track record. We're going to focus exclusively, I think, on lithium in this. And, you know, again, you have we've all been kind of waiting. Right. For maybe a demand shock. Right. Right. There's been an oversupply because of lipidolite, because of, you know, African, you know, spodumene. But, you know, I keep hearing, you know, there's massive over. capacity of cars, but also batteries, like this 50% capacity utilization only in battery manufacturing. And I think there's a lot of excess capacity in Chinese conversion. We're seeing stellar numbers every month out of China and elsewhere in terms of EV uptake. but it's not translating into yet an uptick in lithium prices. That said, lithium equities have been performing quite well. And we had this lithium live stream two weeks ago, and I was asking the question, is the rally because of the M&A and or is the rally in equities forecasting a rise, a near-term rise in prices? we haven't seen that rise in prices so there's still some volatility here but like it it feel like it's getting better right but it's also we're getting into tax law seasons time short interest you know depending on the stock is going up or down but like navigating you know this like when to get in and what to to get in because a lot of stocks were up like 100 percent um on the rk equity scoreboard uh and then exploration stories like q2 out of nowhere you know they've had good results and stock went up then Company like Raiden Resources, you know, went up 100 percent, then it went down 50 percent. You know, Lake Resources, you know, had this rally. So there's a lot of speculation, you know, happening here. And again, we have a U.S. election that in my estimation, it looks like Trump is is more favored to win. And he is very still as much as he's embracing Elon Musk. I just watched his rally at the Madison Square Garden and he's and Joe Rogan. podcast he's anti-wind he's anti-solar he's like you know he's not supportive in a big way and we can't just dismiss it because last time he was elected um you know no no candidate for president actually tried to keep to his campaign promises more than trump in 2016 so for him to kind of make these statements we can't kind of like dismiss it so anyway um rambling a little bit there but Why don't you react to that? Okay. So to take it from where you started with the stock market, stock markets are usually forward-looking to about, I think, four to six months ahead. So maybe this is predicting a recovery in the lithium price sometime three or four months later. We won't see it move immediately, of course. I mean, it has to be stock markets. If they're forward-looking, it has to have a time lag. But I think we are there. We are coming to a point where the lithium price might start inflecting back up. We are too deep into the cost curve as it is right now. And on demand, I think the surge and at least a resumption of the growth in demand for lithium will come sooner than people expect. There's always what you could call a lag between... the prices falling and the demand surging. It's all real-world stuff, right? The price of lithium falls, batteries get cheaper with a lag, cars get cheaper with a lag, and then eventually it hits the consumer market after the production cycle. It hits the consumer market with a lag. And now we are seeing very cheap cars come onto the market in China. Models selling for less than 70,000 yuan, that's less than... 10,000 US dollars for a car. Pretty decent car. It's not just a box on wheels with an electric motor strapped on. There are some fancy gadgets even in there. So we're seeing cars, many models at the 15 to 20,000 US dollar range. And that's profitable for actually for quite a number of the Chinese manufacturers, you know, like BYD. So they've got scale. To draw an example from the solar industry, when now that, you know, there's a similar thing happening in the solar industry to what is happening in the lithium and battery space. There is massive overcapacity in solar manufacturing. Prices have collapsed and they're actually well below production costs right now. Manufacturers are just trying to clear the inventory, move it out, and some of them have already started cutting back production this quarter. But with... The lower prices of the solar panels, you're seeing it put up everywhere. It's cheaper than fencing. Solar panels are being used as fences right now, right? So in the same vein, we're going to see batteries being put everywhere. It's gone so cheap. I was just in Shenzhen two weeks ago, and believe me, every single bus, taxi, half the cars on the roads in Shenzhen All the motorbikes, all the little scooters that people are driving around to get from point A to B, if they're not taking these bigger format vehicles, they are all electric. The demand for electric transport has completely exploded in China. And this is just one of the tier one cities. The same thing is going to happen for tier two, three, four cities all the way. And then these things are going to get exported. Cheap cars, cheap scooters, cheap... motorbikes, e-buses, e-trucks, these are all going overseas at lower prices than what you know the foreign the western manufacturers can build. look what is happening with volkswagen right now just today they announced that they are actually closing down three plants they have never in their history closed plants and i think yeah and you know this is this is a big political thing for them but they literally cannot survive with old um you know ice uh equipment ice manufacturing equipment nowadays the the guys with they have come into the market with brand new lines focused purely on EVs, they're absolutely killing the traditional ICE manufacturers. YJ, that's what I wanted to sort of, if I can jump in and raise it there. So, if you look at what's happened with the likes of VW, Mercedes, etc, selling into China, they're in free fall. So, we're seeing losses. Across the board on all of these operators where is CATLs making money BYDs making money now The problem is with the levies being introduced and tariffs. I probably have upgraded my China EV sales Because at the rate at which it's going now, it's it's exceeding what I had previously So that's that's good going. Although we can have the discussion on plug-in hybrid versus pure EV. That's Being a bit of a wrinkle, it's sort of outperformed, but are you still comfortable that Europe and to the US, to some extent, can get back on track when so few of the EV models are less than the ICE equivalents? Even though batteries are cheap, the traditional OEMs are not making EVs that are cheap enough and not making enough money out of it. Yeah, so I mean, isn't it interesting that BYD's first car container, you know, they have their own car containers, right? and cargo data ships. And I think the second one just got delivered. So they're going to have a whole string of these export vessels to shift their EVs out of China. Isn't it interesting that the first one actually landed of all places in Germany, right? So I think they were trying to make a pretty pointed statement right there. And then in terms of Chinese EV companies putting plants into Europe. and operating in Europe? Do you think so? Is this the death knell for Western OEMs? Are they on the way out now? Are they really going to be up against it? Yeah, I think we have to have an open mind on this and consider the very, I would say, very high likelihood that many, if not most of them, may not see another decade in existence. So this is a... massive disruption period. We've seen many industries go through such disruptions, film, photocopiers and all that, right? So these are all examples where the incumbent who's been around for centuries sometimes simply just disappears when something new and much lower cost and better comes along. So do you think then that Europe... In terms of the transition to EVs can get back on track as Chinese EV manufacturers operate out of Europe and can bring in competitive pricing. Because I think the demand is there, it's just the demand is not there. I mean some of the models I've seen are just ridiculously expensive for what they are. If the pricing and the model range and choice is there, that Europe will get back on track to a high EV penetration. Yeah, so there are two levels at work here. At the manufacturing level, if the Chinese come in and build their own plants, of course, they will hire locals, right? And then there will be a gradual shift of workers from the traditional Volkswagen, Mercedes manufacturing plants to the Chinese plants. I mean, the demand will clearly move the people over. But there will be a transition period. It will be kind of painful. There will be some unhappiness in the, you know, Bit of unrest maybe. They like protesting there. But it's tough. It's going to be tough for them. And I don't blame them. It's a bad situation to be in, facing competition like this. But I think it has to happen. Otherwise, these plants are just going to shut down with no further recourse, right? And at the higher level, on the other level of the European Commission, tariffs and all that, yeah, Some small manufacturers get hit with 30% tariffs, but the big ones where it matters like BYD8, they only cop the 10 plus percent tariff. It barely brings them up to the same price as, you know, the locally produced EVs. So they've got plenty of room to play there. BYD actually makes a much higher margin on their export than even in China. So they can just adjust the price down, accept a slightly lower margin and be absolutely competitive in Europe. And tell me your thoughts on S-Vault waving the white flag and withdrawing and Northvolt against the ropes. What are your thoughts there? Does this mean we're going to have... An onslaught of Chinese battery cell manufacturers now taking control of Europe. Yeah, I don't think there are two ways about it. It's very simply survival of the fittest. And in the batteries game, the guy with the largest scale more or less wins. And of course, the better manufacturing equipment and processors and all that. But basically, it comes down to can you produce something cheaper? than your competitors? Or if not, are your customers willing to accept a higher price? Like we have not seen any customers willing to pay for green lithium or any higher price commodity just for the sake of being non-Chinese or more ESG aligned. The same is happening in batteries and car manufacturers. Nobody's willing to take a higher price battery if they get a cheaper one in China. Countries like, of course, the US have been trying to They call it level of playing field here by giving IRA credits, right, to the non-Chinese aligned production supply chain. But I don't think the decoupling will work. I mean, I think I mentioned that the one-to-one question and answer. Somebody posed this question. I was quite blunt about it. I don't think the decoupling will succeed. When you say, I mean, there's... Panasonic and the Japanese, there's the Koreans who are active in the US and also, I guess, in Europe. Are they competitive to CITM? I mean, the Chinese don't have 100% market share. They are not. You don't see them cost competitive? No, they're not that competitive. Look at, I mean, just look at how high their input costs are versus the Chinese. And they're not vertically integrated like the Chinese are. BYD hasn't yet got their own minds, but But CATL does have its own minds. So does Panasonic or LG have that? LG has some offtakes, but they are not as vertically integrated. And of course, they cannot fight the Chinese on pure scale. So, I mean, is it Tesla versus the Chinese and that's it? The rest of the battery EV world is destined for the dustbin? Well, that's what the IRA is trying to prevent, right? And to the extent that the IRA is maintained, it is not repealed by potentially Trump, then, yeah, there is a bit of a wiggle room for the non-Chinese supply chain to exist. But then you'll all be surviving purely on what you could call government subsidies, right? Yeah, look, we just may not transition as fast to electric, right? If he puts 100% or 1,000% tariffs on imports, and it's unclear whether or not he will welcome BYD or CATL to build cars in America if Trump wins. But he is all for drill, baby, drill, oil. You know, again, he likes Elon Musk, but, you know. uh they could be hybrids it could just be you know making big uh you know ice trucks you know suvs for for quite some time you know we'll we'll see but um okay uh the the the lithium story though uh you know it has pivoted to a bit to my frustration what was exciting a few years ago was that uh you know the u.s and europe kind of joined china and like the lithium story became kind of a global story And it's become, again, a China story, you know, from a demand side and, you know, watching the supply as well. But the data points there are strong. And we are a rock stock channel, so we're very focused. We've always thought the upstream raw materials go along what China is short. And it still is true that China does not have the best lithium resources. and therefore will need to acquire. you know resources outside of china but they do have some resources inside china and you've been following some of those because we were talking about like there's this narrative now uh there's always narratives every three or six months new narratives are created little micro narratives within lithium so the rio arcadium uh deal uh that there's some narrative out there that brines it's all brines you know that's the best way to go um and there are the low end of the cost curve and maybe australia and hard rock um you know less interesting or maybe see in quebec uh you know and and elsewhere so i i think about that and then i think about well okay how do you invest in brian uh as an equity investor and sqm from atacama only gets 15 economics out of atacama and then they have other businesses in there album all you know their otakama is mixed with a lot of other stuff so hard to play chilean brine in argentina you used to have oracobre then all chem you know at least you had two producing choices you know then you had one in arcadium and now you have zero or you have the only one you have is kind of lithium argentina from a producer uh but you were saying well no there's some ones in china as well and you say okay that's true you could play ganfang you know for exposure to argentine lithium um and also i mean maybe chinese you know related lithium but like so do you concur with this narrative that you know brines are you know now should be you know the focus you know versus you know maybe harder like if you look at the landscape of the world of conventional brines conventional hard rock dle brines you know sediments like where are you positioning your portfolio like what do you what do you prefer and if you can't speak about specific stocks that's fine but uh general kind of you know types and geographies and if you could talk a little bit about china uh because we don't talk too much about you we were talking before we recorded that the ganfang looks interesting and i like would love an update you know on that okay cool big big questions here um Okay, I'll probably start with the bigger picture on carbonate versus hydroxide, right? And I think for the near term, we are probably leaning more towards the carbonate side, simply because LFPs are the dominant battery chemistry today. And I think it's going to stay this way for probably the next half decade. All the mass market vehicles, all the ESS, the buses and trucks, they are all going to be on LFP. So to the extent that carbonate is preferred for LFP versus the conversion that hydroxide has to go through to become carbonate before it can be used in an LFP battery, we would prefer the more direct source of production, which are brines. I think you are quite right to say that there are not that many ways left to play brine. We were actually very heavily invested in Arcadium and you know in September I had just started I actually traveled down on our position in Arcadium in September it was looking way way too attractively priced 0.4 times bulk you know and I know that and I was hoping to add in a little bit more over the next few months and then of course Rio comes in takes it out in the space of a month so you know I think, yeah, actually at that point in time, early October, I had about 6% of the portfolio in Arcadium that nearly doubled in a month. I'm not too unhappy about it, though. I think if Arcadium had been left as an independent entity, we could have made a lot more in the longer term than that. But it's okay. I'll take the burden in hand today, put it in some other places. I am, of course, happy to... continue looking at more brine plays. Argentina has a few other brine plays that are interesting. Big, scalable, some small and scalable. I think you mentioned Ganfeng. Yes, I like that. They are, a lot of people think of them as purely Chinese converter, you know, of rock to battery grade material, right? But I see them as much more. they have their own small but um is there the battery line uh they have stakes in Lithium America Argentina's projects. So they are very vertically integrated as well. So I see that as actually that is something very similar to Arcadium. Just that of course, no other Western big mining major is going to take out Ganfeng. It's not for sale, one. And two, you're never going to get IRA credits out of that route. So that's not going to happen. But for us, we do invest in the Chinese lithium companies as well. There are brine plays in China. There are rock plays in China. Of course, most of them being lapidolite for the rock, but some of them are at okay cost. So you could actually get into some of these players at what is, I think today, a very low point in the overall lithium. cycle. Yes, you earlier said that some of these stocks have gone up 50-100% in the last couple of months, but the bigger picture is that they have fallen 80-90% from their peaks two years ago. So 100% up from a 90% fall is merely back up to 20 plus percent of the high. So there's still a long way to go if we were ever to go back to even $20,000 lithium. I don't, okay, why I'm avoiding talking about individual stocks as much as I'm a fund manager, I don't want to come across as talking my book, I don't want to come across as recommending individual stocks because literally my regulatory license forbids me from doing so, so I will not recommend any stocks, but I'm happy to talk about, you know, the broad themes and, you know, everybody's a smart listener here, you can figure out which companies I'm talking about, yeah. ROC, I think, is perfectly viable. I like the traditional. In the current investing environment where lithium prices are at cyclical lows, I like being in the proven traditional production methods that from today can get you a very, very decent, in fact, pretty... dollar return over the next one two years uh without having to go for the fancy uh production methods that are that are unproven or even technologically you know um yeah not basically unproven so um brines will not be enough to fill to fulfill all the lithium demand that we see in the next few years that is for sure um brines just take way too long to scale and there are actually not enough um supply of high altitude, low precipitation, dry areas, arid areas where you can do sheet evaporation points. So that already limits the supply of brines. ROC will then have to fill the bulk of the lithium demand. So ROC will be needed. There will be a conversion cost going through the converters in China and then coming onto the market. So that works. So I think where the supply curve is concerned, it will be mostly brines, most of the traditional rock, and then comes the clays and potentially the DLEs. And I actually wouldn't say that Lepidolite is all the way at the far end because they do have a very broad range of costs that some of them actually come right into the main rock, traditional rock costs. So I'll leave it. I'll leave it there. I think a lot of this space is playable, just focusing on the first and second quartiles of the cost curve. YJ, in terms of looking at potential greenfield projects, how do you think or compare in terms of timelines and capex for conventional brine versus, say, DMS-only hard rock being shipped to China? So, you know... Brazil or wherever else is pretty low capex getting shipped to low capex China versus a Greenfields brand that could take quite some time to be developed and with a higher capex but a great OPEX. How do you look at your NPVs? I know it's project by project, but where do you lean on that? I have no specific preference either way. I like companies that have low costs, can execute and deliver well. Yes, Brazil, of course, the only producing player there in a big scale is Sigma, right? So they've done pretty well in execution and building out the first mine at a very low cost. And I think they actually have managed to deliver good product at a great OPEX as well. And the next. their next mines are coming up. So that's one of the ways that low cost supply is still growing into the market right now. And I think it needs to be there anyway, the demand is still growing 20 plus percent a year. So we had this sort of conversation just before we started as well as if you look at what Albemarle or Arcadia were mentioning about what is incentive pricing to do greenfields. A lot of it's around the 18 to 20, I think some of it above. If I looked at your chart, even on the lipid light, and if we look at some of the African ores, etc., there's a lot of potential supply that can come on between $10,000 a ton and $20,000. I mean, I think kind of the pushback that all of us had in the industry... in terms of what some of the banks were suggesting, is I don't think long-term you can just have $11,000 a ton go for five or six years. It's just too tight. But at $15,000, at $14,000, $15,000, does that open up quite a lot of avenues for you in terms of who can come on? Yeah, of course. I mean, if we were to go from $10,000 to $15,000, that's a 50% increase in the lithium price. Many of the companies in our portfolios would probably double. But yeah, I think that even a $15,000 or close to $20,000 would allow many, many of these guys to be quite healthily profitable. I don't think the lithium price needs to go to the mad $80,000 level or even $50,000. I think that's probably an overreaction of a small market back then. But I do think that it will not be a case where the price is... lower for longer. When the price was at $80, everybody was saying higher for longer. I mean, I was not one of those that said it was going to turn around and crash that quickly, I'll admit to that. I actually thought it would be higher for longer as well because nobody could have seen the lapidolite and the African supply come online that quickly. So that caught the whole industry by surprise. But now that we are on the flip side of it, being overly pessimistic is also probably wrong. I mean, we're all talking probabilities here, right? I mean, it doesn't make sense for an entire, most of an industry to be negative cash flow for more than, say, five or six quarters. That's the experience that we have from the solar industry, one that is extremely, extremely boom-bust cycle. Our fund has, the main fund has 15 years, right? So it started in 2009. The first solar boom came in 2012 and then it collapsed. Next one was 1415 boom and bust. And we are now seeing the next one. We are in the middle of the next third or fourth bust right now. It's always the same pattern. The industry is loss making for about five to six quarters. And then supply leaves the industry is too painful to hold on. Even the big players start talking about, you know, having a little bit more discipline. And that's exactly what we have seen in the lithium space as well. So it's been a little bit more than, I think, a year since many of these companies started going profit negative. Some of them have now become cash negative, which is why we start seeing fund shutdowns across Australia, across even some in Africa. I think, was it Sinomite that shut down the Petalite section of the Bikita mine? So. we are seeing supply leave the market already we are seeing supply being deferred all of the main lithium players whether greenfield or brownfield have been talking one to two year deferrals to their main projects so i think i think you saw my slides um our expected supply for the next two years actually fell 17 and 21 percent from basically the start of this year to September. So what price would change your mind and turn those numbers around where you'd see supply come back on? We are now at about 10k to the carbonate and about 800 to the sport, right? I think we are talking 15 plus for carbonate and 1,002 to 1,003 for sport before these guys start thinking about coming back on. But these things happen with a lag. So as we have seen, CATL shut down their... mind probably six months later than they should have they should have pulled the trigger and shut down their mind you know six months ago but no they didn't they only just did it um these companies don't just supply it's not a i mean it's not like an analyst's model where you just shift some numbers around and supply magically appears right no it doesn't work that way you have to hire people you have to train them you have to get them back into the minds you have to ramp it up again you have to do a whole lot of things before mines can shut down or come back to production. So we are going to see these lags happen. And when these lags happen, it also might be the time when the world goes actually into undersupply. Maybe they're overcorrect. Some of demand next year might be stronger than expected. I actually do expect it to be because the one thing that no analyst out there is saying is a resurgence in the growth rate of... lithium demand it's always been down down down every year down year and year but when prices collapse growth rates tend to surge so we see that in solar right so um batteries as well um like you mentioned earlier tesla their mega pack business basically grew 50 plus percent year and year correct and that is one single company there are many many companies in china taiwan um who are actually doing these grid storage products, and all of them are seeing massive growth. I've spoken to a few of the Chinese players. I asked them, do you have any problems selling your ESS products? No, no problem. Where are you getting your batteries from? CATL, BYD, basically. They just go for the best in class, and these best in class are lowest cost, right? So, I mean, there's no real competitive... competitors out there um and why simply because the solar solar installation demand is so strong out there last year we are taking we were talking 444 gigawatts this year we are at 600 and with electricity prices going negative in many power markets across the world um in the middle of the day um these new projects have to come with batteries no batteries your your electricity basically just gets grounded. So ESS will be a huge thing for the rest of this decade. I agree. That's why I've been hugely bullish on it. And at these prices for batteries, now is your best chance to really load up. And not that we're going to discuss it, it's also why I like silver, which you did put at the end of your presentation. So I'm personally a bull on silver. But, you know, is it in terms of legislation for putting backup storage versus just price incentives and the low cost, if you can get electricity for nothing in the day to charge up the batteries to use, are we likely to see the sort of combination of solar and backup and battery sort of rise? It's happening at both the grid scale and the individual residential scale. So what's happening is that big solar plants, 600 gigawatts are being put in the world. Many of them will come with multiple gigawatt hours of batteries. So that's one thing. The other thing is that with batteries being so cheap, even to the retail level, I'm hearing stories about people in Germany basically putting up a 16, 20 kilowatt hour battery in their house. And that takes them effectively off the grid almost the entire year, even in winter. So the house does not require that much. In summer, they sell a lot of power to the grid. In winter, they have about three days of electricity used stored in the battery. And then it slowly recharges over the winter day. But then basically, they are now running their air conditioning, their heat pumps full on through the day. absolute comfort in the house. They're running their TVs, their washing machines, their... And then they're driving around for free. You cannot, this is something that in Singapore, I wish I am absolutely envious, you know, that you can enjoy these things in countries where you have your own roof over your head, right? That's literally all you need. A roof, some space, put some solar panels, stick a battery in, and you are saving yourself hundreds of dollars every month just from, you know, gas prices alone. So commercially, it's also hugely beneficial. Of course. I mean, this is what is driving the entire battery revolution. It's economics, right? People respond to economic incentives faster than any other incentive. So, well, short of being naughty with a whip, but yeah. So, yeah. So this is what's driving the whole market. Y.J., I wanted to ask, you brought up the carbonate versus hydroxide question in relation to brines. There is, I guess my question is, like, everybody thinks about hard rock as going to hydroxide, because that was always the argument for the past few years, that the world's hydroxide, hard rock is cheaper. But people don't talk about hard rock to carbonate. If you look at lithium, Americas, and also ionier. both of which are going to get big checks from the US government. They're making carbonate. In the case of Ioneer, they're going to be making technical grade carbonate. And their customers like Ecopro, the cathode customers, are then going to convert it into hydroxide or they'll use it for carbonate. So my question is, hydroxide looks to be a bit of a bust in Western Australia. And, you know. Tesla is trying the Corpus Christi, AMG is in Europe, and Caliber is in Europe. So, I mean, hydroxide is still there, but I'm thinking hard rock to carbonate, right? We like Quebec a lot, and in the US, and also Ontario. Do you see spodumene being converted into carbonate? I'm just thinking that no one's talking about this narrative. I just think that, oh, well, good hard rock assets could easily be converted to carbonate, as has been the case for decades in China, right? Like Ganfeng and Tangxi are still converting Australian hard rock into carbonate. Yeah, I think I mentioned earlier there is not enough brines to produce all the lithium that is required for the carbonate demand. So, Spodumene has to enter the supply chain for carbonates. But at the same time, I don't think there's really a big theme for investors to play here. I mean, the only play you can do is Ganfeng Tianqi, right? And a few other smaller Chinese names in the sport conversion game like Chengxin, maybe. Yeah, so there are not that many plays you could play. do on this team. But yes, operationally, the industry has to do this. Yeah, I wasn't so much suggesting it as an integrated play, but it's more this, you know, to the extent that there's a narrative out there that hydroxide is growing slower, even though a lot of hydroxide is going to be needed, or hydroxide is exceptionally difficult. And how can kind of Canada look at the Western Australian example and... you know, Canada will struggle. I think you may start seeing a shift in the same way that Lithium Americas and Ioneer are making carbonate. You know, there may be, it may be easier for some of these Quebec stories. I mean, Saada and Piedmont, you know, have a half-built carbonate plant. They might go carbonate. Who knows? I just think that this needs to be talked about a bit. It's not like all, you know, North American, you know, hard rock is... is a hydroxide story. I think it will become a carbonate story to the extent that carbonate becomes, as continues to be, highly relevant for energy storage. It'll happen here in the North American market. You made a lot of comparisons of lithium to solar in terms of boom-bust capacity and the like. I don't follow solar very carefully, but when solar booms, okay, are solar stocks doing well? Yep. They go up 10, 20 times. Is that right? Okay. Okay. And then when they crash, they crash 95%. Okay, so I'm always, I'm often making kind of comparisons of lithium to like my history in iron ore. You know, Rio, when they did their cost curve chart compared it to copper, not iron ore, which I found to be a little bit surprising. You could make an argument that lithium is more like aluminum because of the bauxite to aluminum, but that's not a great, you know. comparison if you're optimistic about lithium if you look at alcoa 150 years history i mean i think they have like a eight or nine billion dollar market cap um you know the aluminum story has been a persistent you know oversupply story for a long time uh but that's good to know uh the comparison to solar these things boom i guess final question it always is uh on price and everyone points to kind of 80 000. that was unsustainable. There weren't a lot of trades there. SQM, I think, peaked out at like $55,000. But I saw a very smart fund manager who's played the market very well in New York. I met him last month at Climate Week. And there's this thought here, you said that the lithium price is at $15,000 or $1,200 to $1,300 spot. It will be economic and... as some of the stocks you own will double. But the concept of the thing that's kind of just like leveling off there is highly unlikely. What's likely is that like by 2026, it'll go to 30,000, 40,000 again before kind of crashing down. Do you subscribe to that view? Absolutely. I mean, it's a commodity. It's a mining commodity. So these things tend to move in large cycles. It took a very long time for this oversupply in the last couple of years to be worked through. Now companies are all scared. Financing is very, very hard to come by. The pressure is building up. I mean, it doesn't show in the lithium price yet, but the way I see the supply being pushed back, the way I see demand continuing to grow over the next few years, I think, based on my model, the next year contrary to what analysts many analysts are forecasting next year we go maybe towards the end of the year but we go into a balance and maybe even a slightly undersupplied market and the price of lithium will move even before the physical goes undersupplied i mean the lithium market is a forward-looking one as well the stock market tries to be forward-looking on the lithium price market so stocks will move ahead of that maybe that's what we're seeing right now but The fact of it is that operationally on the ground, many, many companies are finding it very difficult to get financing. When you can't get financing, your construction time gets pushed back. You know, many of these projects, why Arcadium sold to Rio that readily? They were in the midst of pushing back so many projects. Rio was coming in with a huge amount of nearly unlimited money. It was a match made in heaven for both of them, right? There won't be that many deals, I think, being done like this. So for the most part of the industry, everybody's still struggling to find financing to build the next phase, the next mine. In the meantime, I think we go into a small undersupply by the end of next year. And then 2026, that deficit starts building. But by that time that the deficit is apparent and financing becomes a little bit more available. We are still staring down a 12 to 24 month construction time for most of these mines. Right. And then we get the usual bullwhip effect of supply chains. I think that's what we are experiencing right now. Pressure is building. And well, let's see whether this thesis gets proved out in the next year or two. But I think the weight of history in commodity markets is... heavily in favor of this. And it has been lithium's history. Lithium has been the best performing commodity for the last 10 years. It's also been the worst for the last 10 years. And the cycles seem to be about two years apart. So it sounds like you think the lithium equities rise now is in part forecasting lithium price. rising. Sometime it's forward-looking in the next kind of few months. And then, so that puts us into, you know, the early part of next year. And then, you're suggesting those lithium price rises you know are forecasting i guess a a a death an imminent you know whittling down of the supply you know and then a supply turn or supply um surplus turning into a deficit late next year and then into 2026 the deficit will be apparent everybody will be saying you know so prices will continue to rise equities you know could continues to rise. And then you'll have a financing boom, you know, in 2026 to catch up, right, to this supply deficit. So you're a lot more optimistic in terms of when this surplus goes away. There are a number of people out there who just think that prices rise 25%, whole bunch of supply comes back on the market. The Chinese can be faster, you know, layoffs and then rehirings, you know, are easier to start, stop. Um, and, and, and they're calling for, they're not calling for what you're calling for as soon as you're calling for it, that they see 2027, 2028. So look, that's what makes the market. Um, we hope you're right. Uh, I think we're going to subtitle this, uh, Rockstock recap as a raging lithium bull, you know, a raging bull to one of my favorite, favorite movies. Is that, is that overstating it? Why Jay? Uh, probably a little bit. Okay. All right. So for a teaser, if you've watched our videos before and, you know, we do like to make rock and pop culture themed, you know, teasers. So what's your favorite music or something that may be new I haven't heard of that's popular in your part of the world that you like to listen to that we could use to summarize this interview? Oh, gosh. I mean, this came out of nowhere. I'm not even a pop music kind of guy. What's your favorite? Jazz or opera? This is going to be absolutely boring. I'm a bit of a pianist myself, so my favorite musicians are all composers, piano composers. Okay. Mozart? A little bit more towards Beethoven, Rachmaninoff and Chopin. Rachmaninoff and Chopin. Okay. Any particular, do you play? Yeah, the piano. So, I mean, go with Rachmaninoff. I love the guy. I mean, he's punchy. What's your favorite piece that you would play or you would listen to? The Prelude in G minor. The one that goes... and it's punchy, it's loud. Prelude in G minor from Rachmaninoff. Okay, we got it. Perfect. It's got to be the weirdest. It's not weird at all. I like classical music. I just haven't utilized it much in our writing. Okay, Rachmaninoff, Lithium, Y.J. Lee. An energy transition investor at Arkane Capital Advisors. Thank you very much for joining us. And we look forward to catching up with you in a few months'time. And hopefully your forecasts will be correct. Thank you, Howard. Thank you, Rodney. It's been great.

Lee at Arcane Capital. management or capital advisors out of singapore uh we'd encourage all of our viewers to follow uh yj on x he is at usually yj lee uh he i've been following him for a bit uh he's responding to some of our friends who kind of cover the lapidolite market um you know and china like so the lithium market over the past few past year in particular which caught us by surprise was what was happening by Chinese companies in China and in kind of private companies in Africa. And Y.J., I think, may have some additional insights on this. But Y.J., we saw you first on the Money of Mine podcast maybe a month or so ago, and then you presented at the one-to-one conference in... I don't know if it's Hong Kong or Singapore.

Rodney and I have a very good relationship with one-to-one. I moderated a panel last week in New York. Rodney is going to be in London in about a week or two.

He'll be moderating a panel and have some fresh views there. Actually, he'll be presenting and participating in a panel. So we will actually have the one-to-one panel I moderated.

We'll be publishing as a video sometime next week. But just wanted to... kind of mentioned that.

But overall, we're going to play some snippets of you from that one-to-one presentation. I don't want you to regurgitate the slides there. By actual installations, solar has gone absolutely ballistic. In 2017, 2018, we were talking about 101, 106 gigawatts being installed across the world.

And last year, that jumped to 444 gigawatts. How do you add more solar when power prices go negative, right? The only way to do so is by putting in battery storage.

You have to load shift this excess capacity from peak production period to peak demand periods at the end of the day. To install just one hour of storage in 2030 takes more lithium than is being produced in the entire world today. Electric bus has a battery about five to six times that of a car. And we forecast about 400,000 such electric buses to be sold by the end of this decade. If we want to do one hour of storage, we're going to use all the world's lithium being produced today.

There are simply not enough mines in the world to deliver that kind of supply. Under the current low lithium price environment, companies globally have cut back supply for next year by 17%. and for 2026 by 21%.

The large caps are down 67%, the small caps are down 80 to 90%. If you want a bottom fish, this is the time to do so. Lithium demand is severely underestimated. Supply growth has been postponed and still continues being postponed, and battery storage still requires lithium. There is no alternative right now.

Solar demand should trigger a price spike. There's a lack of substitutes. and it is very difficult to increase supply. Fundamentally, you are outlier bullish lithium.

You know, you have a 4 million ton lithium demand forecast for 2030, which is higher than Arcadium's upgraded lithium forecast from their investor day, which was at 3.5 and is higher than, you know. album all which had been at 3.7 they ratcheted down to 3.3 uh but i think broadly to summarize why you're so much more bullish uh and it's a function of energy storage solutions which rodney has also been outlier bullish on uh solar in particular and you know but also ev trucks buses and other kind of large format uh since you're one-to-one uh This is Rockstock Recap, so we do want to talk about the current news. I mean, since your one-to-one presentation.

tesla's reported results which were great i don't know if you've analyzed those but energy storage was excellent there but there's also um you know expectation on a on a cheap car you know coming out next year but they didn't give great details on it uh you know we had a deal aramette you know in the dle argentine space bought out their chinese partner qingshan which was seemed interesting we could talk a little bit about that from a valuation perspective and what the read-through might be. And, you know, Minres has been in the news about Chris Ellison. We're not going to talk too much about that, but it has created, you know, a fair bit of volatility. This time last year, Western Australia was in focus from the lithium space in terms of M&A, you know, Hancock, you know, and Azor and SQM.

But... Western Australia for much of this year has just been supply reductions. And then when it comes to like Tang Shi, Kwanada, and Kemerton, significant kind of scale backs.

And on my panel at One to One, a resource capital analyst was actually talking that distressed opportunities in the current market might be picking up. You know, actually Albemarle. and or Tangshu divesting of those properties. So there's quite a bit of shine off of the Western Australian lithium story, although obviously Pilbara is doing okay from a cost side. We've also had some earnings that have come out.

So long intro. Rodney has a few questions. I don't know exactly what the agenda is, but YJ, why don't you just kind of introduce yourself a little bit and. maybe make some comments and observations on some of the things I just referenced. Okay, cool.

Hi, guys. Thanks for having me here. Yeah, my name is YJ.

I'm a fund manager based in Singapore. We manage, well, with Arcane Capital Advisors, we manage two funds, one based in Luxembourg. That's called the Solar and Sustainable Energy Fund.

That's a... broad renewable energy fund. It's invested in everything from solar to wind to EVs to batteries, lithium and all the supply chains.

This fund has been around for about 15 years now since 2009. We've kind of outperformed the green indices by about 9 to 10 percent per year over these 15 years so that's kind of our track record. And recently in Singapore we launched our second fund. It is called the Arcane Green Metal Fund. This is a fund that where we invest purely on the miners that produce the metals for the energy transition. So everything from lithium to nickel, cobalt, graphite, silver, copper, these are the metals and the miners that we investigate and we invest for this portfolio.

So we have these two ways to play the overall energy transition theme. Okay, great. And you've had good track record.

We're going to focus exclusively, I think, on lithium in this. And, you know, again, you have we've all been kind of waiting. Right. For maybe a demand shock.

Right. Right. There's been an oversupply because of lipidolite, because of, you know, African, you know, spodumene.

But, you know, I keep hearing, you know, there's massive over. capacity of cars, but also batteries, like this 50% capacity utilization only in battery manufacturing. And I think there's a lot of excess capacity in Chinese conversion.

We're seeing stellar numbers every month out of China and elsewhere in terms of EV uptake. but it's not translating into yet an uptick in lithium prices. That said, lithium equities have been performing quite well.

And we had this lithium live stream two weeks ago, and I was asking the question, is the rally because of the M&A and or is the rally in equities forecasting a rise, a near-term rise in prices? we haven't seen that rise in prices so there's still some volatility here but like it it feel like it's getting better right but it's also we're getting into tax law seasons time short interest you know depending on the stock is going up or down but like navigating you know this like when to get in and what to to get in because a lot of stocks were up like 100 percent um on the rk equity scoreboard uh and then exploration stories like q2 out of nowhere you know they've had good results and stock went up then Company like Raiden Resources, you know, went up 100 percent, then it went down 50 percent. You know, Lake Resources, you know, had this rally.

So there's a lot of speculation, you know, happening here. And again, we have a U.S. election that in my estimation, it looks like Trump is is more favored to win. And he is very still as much as he's embracing Elon Musk. I just watched his rally at the Madison Square Garden and he's and Joe Rogan. podcast he's anti-wind he's anti-solar he's like you know he's not supportive in a big way and we can't just dismiss it because last time he was elected um you know no no candidate for president actually tried to keep to his campaign promises more than trump in 2016 so for him to kind of make these statements we can't kind of like dismiss it so anyway um rambling a little bit there but Why don't you react to that?

Okay. So to take it from where you started with the stock market, stock markets are usually forward-looking to about, I think, four to six months ahead. So maybe this is predicting a recovery in the lithium price sometime three or four months later.

We won't see it move immediately, of course. I mean, it has to be stock markets. If they're forward-looking, it has to have a time lag.

But I think we are there. We are coming to a point where the lithium price might start inflecting back up. We are too deep into the cost curve as it is right now. And on demand, I think the surge and at least a resumption of the growth in demand for lithium will come sooner than people expect.

There's always what you could call a lag between... the prices falling and the demand surging. It's all real-world stuff, right?

The price of lithium falls, batteries get cheaper with a lag, cars get cheaper with a lag, and then eventually it hits the consumer market after the production cycle. It hits the consumer market with a lag. And now we are seeing very cheap cars come onto the market in China. Models selling for less than 70,000 yuan, that's less than... 10,000 US dollars for a car.

Pretty decent car. It's not just a box on wheels with an electric motor strapped on. There are some fancy gadgets even in there. So we're seeing cars, many models at the 15 to 20,000 US dollar range. And that's profitable for actually for quite a number of the Chinese manufacturers, you know, like BYD.

So they've got scale. To draw an example from the solar industry, when now that, you know, there's a similar thing happening in the solar industry to what is happening in the lithium and battery space. There is massive overcapacity in solar manufacturing. Prices have collapsed and they're actually well below production costs right now.

Manufacturers are just trying to clear the inventory, move it out, and some of them have already started cutting back production this quarter. But with... The lower prices of the solar panels, you're seeing it put up everywhere.

It's cheaper than fencing. Solar panels are being used as fences right now, right? So in the same vein, we're going to see batteries being put everywhere.

It's gone so cheap. I was just in Shenzhen two weeks ago, and believe me, every single bus, taxi, half the cars on the roads in Shenzhen All the motorbikes, all the little scooters that people are driving around to get from point A to B, if they're not taking these bigger format vehicles, they are all electric. The demand for electric transport has completely exploded in China. And this is just one of the tier one cities. The same thing is going to happen for tier two, three, four cities all the way.

And then these things are going to get exported. Cheap cars, cheap scooters, cheap... motorbikes, e-buses, e-trucks, these are all going overseas at lower prices than what you know the foreign the western manufacturers can build.

look what is happening with volkswagen right now just today they announced that they are actually closing down three plants they have never in their history closed plants and i think yeah and you know this is this is a big political thing for them but they literally cannot survive with old um you know ice uh equipment ice manufacturing equipment nowadays the the guys with they have come into the market with brand new lines focused purely on EVs, they're absolutely killing the traditional ICE manufacturers. YJ, that's what I wanted to sort of, if I can jump in and raise it there. So, if you look at what's happened with the likes of VW, Mercedes, etc, selling into China, they're in free fall. So, we're seeing losses.

Across the board on all of these operators where is CATLs making money BYDs making money now The problem is with the levies being introduced and tariffs. I probably have upgraded my China EV sales Because at the rate at which it's going now, it's it's exceeding what I had previously So that's that's good going. Although we can have the discussion on plug-in hybrid versus pure EV.

That's Being a bit of a wrinkle, it's sort of outperformed, but are you still comfortable that Europe and to the US, to some extent, can get back on track when so few of the EV models are less than the ICE equivalents? Even though batteries are cheap, the traditional OEMs are not making EVs that are cheap enough and not making enough money out of it. Yeah, so I mean, isn't it interesting that BYD's first car container, you know, they have their own car containers, right?

and cargo data ships. And I think the second one just got delivered. So they're going to have a whole string of these export vessels to shift their EVs out of China.

Isn't it interesting that the first one actually landed of all places in Germany, right? So I think they were trying to make a pretty pointed statement right there. And then in terms of Chinese EV companies putting plants into Europe.

and operating in Europe? Do you think so? Is this the death knell for Western OEMs? Are they on the way out now?

Are they really going to be up against it? Yeah, I think we have to have an open mind on this and consider the very, I would say, very high likelihood that many, if not most of them, may not see another decade in existence. So this is a...

massive disruption period. We've seen many industries go through such disruptions, film, photocopiers and all that, right? So these are all examples where the incumbent who's been around for centuries sometimes simply just disappears when something new and much lower cost and better comes along.

So do you think then that Europe... In terms of the transition to EVs can get back on track as Chinese EV manufacturers operate out of Europe and can bring in competitive pricing. Because I think the demand is there, it's just the demand is not there. I mean some of the models I've seen are just ridiculously expensive for what they are. If the pricing and the model range and choice is there, that Europe will get back on track to a high EV penetration.

Yeah, so there are two levels at work here. At the manufacturing level, if the Chinese come in and build their own plants, of course, they will hire locals, right? And then there will be a gradual shift of workers from the traditional Volkswagen, Mercedes manufacturing plants to the Chinese plants.

I mean, the demand will clearly move the people over. But there will be a transition period. It will be kind of painful.

There will be some unhappiness in the, you know, Bit of unrest maybe. They like protesting there. But it's tough.

It's going to be tough for them. And I don't blame them. It's a bad situation to be in, facing competition like this. But I think it has to happen.

Otherwise, these plants are just going to shut down with no further recourse, right? And at the higher level, on the other level of the European Commission, tariffs and all that, yeah, Some small manufacturers get hit with 30% tariffs, but the big ones where it matters like BYD8, they only cop the 10 plus percent tariff. It barely brings them up to the same price as, you know, the locally produced EVs. So they've got plenty of room to play there.

BYD actually makes a much higher margin on their export than even in China. So they can just adjust the price down, accept a slightly lower margin and be absolutely competitive in Europe. And tell me your thoughts on S-Vault waving the white flag and withdrawing and Northvolt against the ropes.

What are your thoughts there? Does this mean we're going to have... An onslaught of Chinese battery cell manufacturers now taking control of Europe. Yeah, I don't think there are two ways about it.

It's very simply survival of the fittest. And in the batteries game, the guy with the largest scale more or less wins. And of course, the better manufacturing equipment and processors and all that. But basically, it comes down to can you produce something cheaper?

than your competitors? Or if not, are your customers willing to accept a higher price? Like we have not seen any customers willing to pay for green lithium or any higher price commodity just for the sake of being non-Chinese or more ESG aligned. The same is happening in batteries and car manufacturers. Nobody's willing to take a higher price battery if they get a cheaper one in China.

Countries like, of course, the US have been trying to They call it level of playing field here by giving IRA credits, right, to the non-Chinese aligned production supply chain. But I don't think the decoupling will work. I mean, I think I mentioned that the one-to-one question and answer. Somebody posed this question.

I was quite blunt about it. I don't think the decoupling will succeed. When you say, I mean, there's... Panasonic and the Japanese, there's the Koreans who are active in the US and also, I guess, in Europe.

Are they competitive to CITM? I mean, the Chinese don't have 100% market share. They are not.

You don't see them cost competitive? No, they're not that competitive. Look at, I mean, just look at how high their input costs are versus the Chinese. And they're not vertically integrated like the Chinese are. BYD hasn't yet got their own minds, but But CATL does have its own minds.

So does Panasonic or LG have that? LG has some offtakes, but they are not as vertically integrated. And of course, they cannot fight the Chinese on pure scale. So, I mean, is it Tesla versus the Chinese and that's it?

The rest of the battery EV world is destined for the dustbin? Well, that's what the IRA is trying to prevent, right? And to the extent that the IRA is maintained, it is not repealed by potentially Trump, then, yeah, there is a bit of a wiggle room for the non-Chinese supply chain to exist. But then you'll all be surviving purely on what you could call government subsidies, right? Yeah, look, we just may not transition as fast to electric, right?

If he puts 100% or 1,000% tariffs on imports, and it's unclear whether or not he will welcome BYD or CATL to build cars in America if Trump wins. But he is all for drill, baby, drill, oil. You know, again, he likes Elon Musk, but, you know.

uh they could be hybrids it could just be you know making big uh you know ice trucks you know suvs for for quite some time you know we'll we'll see but um okay uh the the the lithium story though uh you know it has pivoted to a bit to my frustration what was exciting a few years ago was that uh you know the u.s and europe kind of joined china and like the lithium story became kind of a global story And it's become, again, a China story, you know, from a demand side and, you know, watching the supply as well. But the data points there are strong. And we are a rock stock channel, so we're very focused.

We've always thought the upstream raw materials go along what China is short. And it still is true that China does not have the best lithium resources. and therefore will need to acquire.

you know resources outside of china but they do have some resources inside china and you've been following some of those because we were talking about like there's this narrative now uh there's always narratives every three or six months new narratives are created little micro narratives within lithium so the rio arcadium uh deal uh that there's some narrative out there that brines it's all brines you know that's the best way to go um and there are the low end of the cost curve and maybe australia and hard rock um you know less interesting or maybe see in quebec uh you know and and elsewhere so i i think about that and then i think about well okay how do you invest in brian uh as an equity investor and sqm from atacama only gets 15 economics out of atacama and then they have other businesses in there album all you know their otakama is mixed with a lot of other stuff so hard to play chilean brine in argentina you used to have oracobre then all chem you know at least you had two producing choices you know then you had one in arcadium and now you have zero or you have the only one you have is kind of lithium argentina from a producer uh but you were saying well no there's some ones in china as well and you say okay that's true you could play ganfang you know for exposure to argentine lithium um and also i mean maybe chinese you know related lithium but like so do you concur with this narrative that you know brines are you know now should be you know the focus you know versus you know maybe harder like if you look at the landscape of the world of conventional brines conventional hard rock dle brines you know sediments like where are you positioning your portfolio like what do you what do you prefer and if you can't speak about specific stocks that's fine but uh general kind of you know types and geographies and if you could talk a little bit about china uh because we don't talk too much about you we were talking before we recorded that the ganfang looks interesting and i like would love an update you know on that okay cool big big questions here um Okay, I'll probably start with the bigger picture on carbonate versus hydroxide, right? And I think for the near term, we are probably leaning more towards the carbonate side, simply because LFPs are the dominant battery chemistry today. And I think it's going to stay this way for probably the next half decade. All the mass market vehicles, all the ESS, the buses and trucks, they are all going to be on LFP.

So to the extent that carbonate is preferred for LFP versus the conversion that hydroxide has to go through to become carbonate before it can be used in an LFP battery, we would prefer the more direct source of production, which are brines. I think you are quite right to say that there are not that many ways left to play brine. We were actually very heavily invested in Arcadium and you know in September I had just started I actually traveled down on our position in Arcadium in September it was looking way way too attractively priced 0.4 times bulk you know and I know that and I was hoping to add in a little bit more over the next few months and then of course Rio comes in takes it out in the space of a month so you know I think, yeah, actually at that point in time, early October, I had about 6% of the portfolio in Arcadium that nearly doubled in a month. I'm not too unhappy about it, though. I think if Arcadium had been left as an independent entity, we could have made a lot more in the longer term than that.

But it's okay. I'll take the burden in hand today, put it in some other places. I am, of course, happy to...

continue looking at more brine plays. Argentina has a few other brine plays that are interesting. Big, scalable, some small and scalable. I think you mentioned Ganfeng.

Yes, I like that. They are, a lot of people think of them as purely Chinese converter, you know, of rock to battery grade material, right? But I see them as much more.

they have their own small but um is there the battery line uh they have stakes in Lithium America Argentina's projects. So they are very vertically integrated as well. So I see that as actually that is something very similar to Arcadium. Just that of course, no other Western big mining major is going to take out Ganfeng. It's not for sale, one.

And two, you're never going to get IRA credits out of that route. So that's not going to happen. But for us, we do invest in the Chinese lithium companies as well.

There are brine plays in China. There are rock plays in China. Of course, most of them being lapidolite for the rock, but some of them are at okay cost. So you could actually get into some of these players at what is, I think today, a very low point in the overall lithium. cycle.

Yes, you earlier said that some of these stocks have gone up 50-100% in the last couple of months, but the bigger picture is that they have fallen 80-90% from their peaks two years ago. So 100% up from a 90% fall is merely back up to 20 plus percent of the high. So there's still a long way to go if we were ever to go back to even $20,000 lithium. I don't, okay, why I'm avoiding talking about individual stocks as much as I'm a fund manager, I don't want to come across as talking my book, I don't want to come across as recommending individual stocks because literally my regulatory license forbids me from doing so, so I will not recommend any stocks, but I'm happy to talk about, you know, the broad themes and, you know, everybody's a smart listener here, you can figure out which companies I'm talking about, yeah. ROC, I think, is perfectly viable.

I like the traditional. In the current investing environment where lithium prices are at cyclical lows, I like being in the proven traditional production methods that from today can get you a very, very decent, in fact, pretty... dollar return over the next one two years uh without having to go for the fancy uh production methods that are that are unproven or even technologically you know um yeah not basically unproven so um brines will not be enough to fill to fulfill all the lithium demand that we see in the next few years that is for sure um brines just take way too long to scale and there are actually not enough um supply of high altitude, low precipitation, dry areas, arid areas where you can do sheet evaporation points. So that already limits the supply of brines.

ROC will then have to fill the bulk of the lithium demand. So ROC will be needed. There will be a conversion cost going through the converters in China and then coming onto the market. So that works.

So I think where the supply curve is concerned, it will be mostly brines, most of the traditional rock, and then comes the clays and potentially the DLEs. And I actually wouldn't say that Lepidolite is all the way at the far end because they do have a very broad range of costs that some of them actually come right into the main rock, traditional rock costs. So I'll leave it. I'll leave it there. I think a lot of this space is playable, just focusing on the first and second quartiles of the cost curve.

YJ, in terms of looking at potential greenfield projects, how do you think or compare in terms of timelines and capex for conventional brine versus, say, DMS-only hard rock being shipped to China? So, you know... Brazil or wherever else is pretty low capex getting shipped to low capex China versus a Greenfields brand that could take quite some time to be developed and with a higher capex but a great OPEX.

How do you look at your NPVs? I know it's project by project, but where do you lean on that? I have no specific preference either way. I like companies that have low costs, can execute and deliver well.

Yes, Brazil, of course, the only producing player there in a big scale is Sigma, right? So they've done pretty well in execution and building out the first mine at a very low cost. And I think they actually have managed to deliver good product at a great OPEX as well.

And the next. their next mines are coming up. So that's one of the ways that low cost supply is still growing into the market right now.

And I think it needs to be there anyway, the demand is still growing 20 plus percent a year. So we had this sort of conversation just before we started as well as if you look at what Albemarle or Arcadia were mentioning about what is incentive pricing to do greenfields. A lot of it's around the 18 to 20, I think some of it above.

If I looked at your chart, even on the lipid light, and if we look at some of the African ores, etc., there's a lot of potential supply that can come on between $10,000 a ton and $20,000. I mean, I think kind of the pushback that all of us had in the industry... in terms of what some of the banks were suggesting, is I don't think long-term you can just have $11,000 a ton go for five or six years. It's just too tight.

But at $15,000, at $14,000, $15,000, does that open up quite a lot of avenues for you in terms of who can come on? Yeah, of course. I mean, if we were to go from $10,000 to $15,000, that's a 50% increase in the lithium price.

Many of the companies in our portfolios would probably double. But yeah, I think that even a $15,000 or close to $20,000 would allow many, many of these guys to be quite healthily profitable. I don't think the lithium price needs to go to the mad $80,000 level or even $50,000.

I think that's probably an overreaction of a small market back then. But I do think that it will not be a case where the price is... lower for longer. When the price was at $80, everybody was saying higher for longer.

I mean, I was not one of those that said it was going to turn around and crash that quickly, I'll admit to that. I actually thought it would be higher for longer as well because nobody could have seen the lapidolite and the African supply come online that quickly. So that caught the whole industry by surprise.

But now that we are on the flip side of it, being overly pessimistic is also probably wrong. I mean, we're all talking probabilities here, right? I mean, it doesn't make sense for an entire, most of an industry to be negative cash flow for more than, say, five or six quarters. That's the experience that we have from the solar industry, one that is extremely, extremely boom-bust cycle.

Our fund has, the main fund has 15 years, right? So it started in 2009. The first solar boom came in 2012 and then it collapsed. Next one was 1415 boom and bust. And we are now seeing the next one. We are in the middle of the next third or fourth bust right now.

It's always the same pattern. The industry is loss making for about five to six quarters. And then supply leaves the industry is too painful to hold on. Even the big players start talking about, you know, having a little bit more discipline. And that's exactly what we have seen in the lithium space as well.

So it's been a little bit more than, I think, a year since many of these companies started going profit negative. Some of them have now become cash negative, which is why we start seeing fund shutdowns across Australia, across even some in Africa. I think, was it Sinomite that shut down the Petalite section of the Bikita mine? So. we are seeing supply leave the market already we are seeing supply being deferred all of the main lithium players whether greenfield or brownfield have been talking one to two year deferrals to their main projects so i think i think you saw my slides um our expected supply for the next two years actually fell 17 and 21 percent from basically the start of this year to September.

So what price would change your mind and turn those numbers around where you'd see supply come back on? We are now at about 10k to the carbonate and about 800 to the sport, right? I think we are talking 15 plus for carbonate and 1,002 to 1,003 for sport before these guys start thinking about coming back on. But these things happen with a lag.

So as we have seen, CATL shut down their... mind probably six months later than they should have they should have pulled the trigger and shut down their mind you know six months ago but no they didn't they only just did it um these companies don't just supply it's not a i mean it's not like an analyst's model where you just shift some numbers around and supply magically appears right no it doesn't work that way you have to hire people you have to train them you have to get them back into the minds you have to ramp it up again you have to do a whole lot of things before mines can shut down or come back to production. So we are going to see these lags happen. And when these lags happen, it also might be the time when the world goes actually into undersupply.

Maybe they're overcorrect. Some of demand next year might be stronger than expected. I actually do expect it to be because the one thing that no analyst out there is saying is a resurgence in the growth rate of... lithium demand it's always been down down down every year down year and year but when prices collapse growth rates tend to surge so we see that in solar right so um batteries as well um like you mentioned earlier tesla their mega pack business basically grew 50 plus percent year and year correct and that is one single company there are many many companies in china taiwan um who are actually doing these grid storage products, and all of them are seeing massive growth.

I've spoken to a few of the Chinese players. I asked them, do you have any problems selling your ESS products? No, no problem. Where are you getting your batteries from?

CATL, BYD, basically. They just go for the best in class, and these best in class are lowest cost, right? So, I mean, there's no real competitive...

competitors out there um and why simply because the solar solar installation demand is so strong out there last year we are taking we were talking 444 gigawatts this year we are at 600 and with electricity prices going negative in many power markets across the world um in the middle of the day um these new projects have to come with batteries no batteries your your electricity basically just gets grounded. So ESS will be a huge thing for the rest of this decade. I agree. That's why I've been hugely bullish on it. And at these prices for batteries, now is your best chance to really load up.

And not that we're going to discuss it, it's also why I like silver, which you did put at the end of your presentation. So I'm personally a bull on silver. But, you know, is it in terms of legislation for putting backup storage versus just price incentives and the low cost, if you can get electricity for nothing in the day to charge up the batteries to use, are we likely to see the sort of combination of solar and backup and battery sort of rise? It's happening at both the grid scale and the individual residential scale.

So what's happening is that big solar plants, 600 gigawatts are being put in the world. Many of them will come with multiple gigawatt hours of batteries. So that's one thing. The other thing is that with batteries being so cheap, even to the retail level, I'm hearing stories about people in Germany basically putting up a 16, 20 kilowatt hour battery in their house.

And that takes them effectively off the grid almost the entire year, even in winter. So the house does not require that much. In summer, they sell a lot of power to the grid. In winter, they have about three days of electricity used stored in the battery. And then it slowly recharges over the winter day.

But then basically, they are now running their air conditioning, their heat pumps full on through the day. absolute comfort in the house. They're running their TVs, their washing machines, their...

And then they're driving around for free. You cannot, this is something that in Singapore, I wish I am absolutely envious, you know, that you can enjoy these things in countries where you have your own roof over your head, right? That's literally all you need. A roof, some space, put some solar panels, stick a battery in, and you are saving yourself hundreds of dollars every month just from, you know, gas prices alone.

So commercially, it's also hugely beneficial. Of course. I mean, this is what is driving the entire battery revolution. It's economics, right? People respond to economic incentives faster than any other incentive.

So, well, short of being naughty with a whip, but yeah. So, yeah. So this is what's driving the whole market.

Y.J., I wanted to ask, you brought up the carbonate versus hydroxide question in relation to brines. There is, I guess my question is, like, everybody thinks about hard rock as going to hydroxide, because that was always the argument for the past few years, that the world's hydroxide, hard rock is cheaper. But people don't talk about hard rock to carbonate. If you look at lithium, Americas, and also ionier.

both of which are going to get big checks from the US government. They're making carbonate. In the case of Ioneer, they're going to be making technical grade carbonate.

And their customers like Ecopro, the cathode customers, are then going to convert it into hydroxide or they'll use it for carbonate. So my question is, hydroxide looks to be a bit of a bust in Western Australia. And, you know.

Tesla is trying the Corpus Christi, AMG is in Europe, and Caliber is in Europe. So, I mean, hydroxide is still there, but I'm thinking hard rock to carbonate, right? We like Quebec a lot, and in the US, and also Ontario.

Do you see spodumene being converted into carbonate? I'm just thinking that no one's talking about this narrative. I just think that, oh, well, good hard rock assets could easily be converted to carbonate, as has been the case for decades in China, right?

Like Ganfeng and Tangxi are still converting Australian hard rock into carbonate. Yeah, I think I mentioned earlier there is not enough brines to produce all the lithium that is required for the carbonate demand. So, Spodumene has to enter the supply chain for carbonates. But at the same time, I don't think there's really a big theme for investors to play here.

I mean, the only play you can do is Ganfeng Tianqi, right? And a few other smaller Chinese names in the sport conversion game like Chengxin, maybe. Yeah, so there are not that many plays you could play. do on this team. But yes, operationally, the industry has to do this.

Yeah, I wasn't so much suggesting it as an integrated play, but it's more this, you know, to the extent that there's a narrative out there that hydroxide is growing slower, even though a lot of hydroxide is going to be needed, or hydroxide is exceptionally difficult. And how can kind of Canada look at the Western Australian example and... you know, Canada will struggle.

I think you may start seeing a shift in the same way that Lithium Americas and Ioneer are making carbonate. You know, there may be, it may be easier for some of these Quebec stories. I mean, Saada and Piedmont, you know, have a half-built carbonate plant.

They might go carbonate. Who knows? I just think that this needs to be talked about a bit.

It's not like all, you know, North American, you know, hard rock is... is a hydroxide story. I think it will become a carbonate story to the extent that carbonate becomes, as continues to be, highly relevant for energy storage.

It'll happen here in the North American market. You made a lot of comparisons of lithium to solar in terms of boom-bust capacity and the like. I don't follow solar very carefully, but when solar booms, okay, are solar stocks doing well? Yep. They go up 10, 20 times.

Is that right? Okay. Okay.

And then when they crash, they crash 95%. Okay, so I'm always, I'm often making kind of comparisons of lithium to like my history in iron ore. You know, Rio, when they did their cost curve chart compared it to copper, not iron ore, which I found to be a little bit surprising.

You could make an argument that lithium is more like aluminum because of the bauxite to aluminum, but that's not a great, you know. comparison if you're optimistic about lithium if you look at alcoa 150 years history i mean i think they have like a eight or nine billion dollar market cap um you know the aluminum story has been a persistent you know oversupply story for a long time uh but that's good to know uh the comparison to solar these things boom i guess final question it always is uh on price and everyone points to kind of 80 000. that was unsustainable. There weren't a lot of trades there.

SQM, I think, peaked out at like $55,000. But I saw a very smart fund manager who's played the market very well in New York. I met him last month at Climate Week. And there's this thought here, you said that the lithium price is at $15,000 or $1,200 to $1,300 spot.

It will be economic and... as some of the stocks you own will double. But the concept of the thing that's kind of just like leveling off there is highly unlikely. What's likely is that like by 2026, it'll go to 30,000, 40,000 again before kind of crashing down. Do you subscribe to that view?

Absolutely. I mean, it's a commodity. It's a mining commodity. So these things tend to move in large cycles. It took a very long time for this oversupply in the last couple of years to be worked through.

Now companies are all scared. Financing is very, very hard to come by. The pressure is building up.

I mean, it doesn't show in the lithium price yet, but the way I see the supply being pushed back, the way I see demand continuing to grow over the next few years, I think, based on my model, the next year contrary to what analysts many analysts are forecasting next year we go maybe towards the end of the year but we go into a balance and maybe even a slightly undersupplied market and the price of lithium will move even before the physical goes undersupplied i mean the lithium market is a forward-looking one as well the stock market tries to be forward-looking on the lithium price market so stocks will move ahead of that maybe that's what we're seeing right now but The fact of it is that operationally on the ground, many, many companies are finding it very difficult to get financing. When you can't get financing, your construction time gets pushed back. You know, many of these projects, why Arcadium sold to Rio that readily? They were in the midst of pushing back so many projects. Rio was coming in with a huge amount of nearly unlimited money.

It was a match made in heaven for both of them, right? There won't be that many deals, I think, being done like this. So for the most part of the industry, everybody's still struggling to find financing to build the next phase, the next mine.

In the meantime, I think we go into a small undersupply by the end of next year. And then 2026, that deficit starts building. But by that time that the deficit is apparent and financing becomes a little bit more available. We are still staring down a 12 to 24 month construction time for most of these mines.

Right. And then we get the usual bullwhip effect of supply chains. I think that's what we are experiencing right now.

Pressure is building. And well, let's see whether this thesis gets proved out in the next year or two. But I think the weight of history in commodity markets is...

heavily in favor of this. And it has been lithium's history. Lithium has been the best performing commodity for the last 10 years.

It's also been the worst for the last 10 years. And the cycles seem to be about two years apart. So it sounds like you think the lithium equities rise now is in part forecasting lithium price. rising. Sometime it's forward-looking in the next kind of few months.

And then, so that puts us into, you know, the early part of next year. And then, you're suggesting those lithium price rises you know are forecasting i guess a a a death an imminent you know whittling down of the supply you know and then a supply turn or supply um surplus turning into a deficit late next year and then into 2026 the deficit will be apparent everybody will be saying you know so prices will continue to rise equities you know could continues to rise. And then you'll have a financing boom, you know, in 2026 to catch up, right, to this supply deficit. So you're a lot more optimistic in terms of when this surplus goes away.

There are a number of people out there who just think that prices rise 25%, whole bunch of supply comes back on the market. The Chinese can be faster, you know, layoffs and then rehirings, you know, are easier to start, stop. Um, and, and, and they're calling for, they're not calling for what you're calling for as soon as you're calling for it, that they see 2027, 2028. So look, that's what makes the market.

Um, we hope you're right. Uh, I think we're going to subtitle this, uh, Rockstock recap as a raging lithium bull, you know, a raging bull to one of my favorite, favorite movies. Is that, is that overstating it? Why Jay? Uh, probably a little bit.

Okay. All right. So for a teaser, if you've watched our videos before and, you know, we do like to make rock and pop culture themed, you know, teasers.

So what's your favorite music or something that may be new I haven't heard of that's popular in your part of the world that you like to listen to that we could use to summarize this interview? Oh, gosh. I mean, this came out of nowhere.

I'm not even a pop music kind of guy. What's your favorite? Jazz or opera?

This is going to be absolutely boring. I'm a bit of a pianist myself, so my favorite musicians are all composers, piano composers. Okay.

Mozart? A little bit more towards Beethoven, Rachmaninoff and Chopin. Rachmaninoff and Chopin.

Okay. Any particular, do you play? Yeah, the piano. So, I mean, go with Rachmaninoff.

I love the guy. I mean, he's punchy. What's your favorite piece that you would play or you would listen to? The Prelude in G minor. The one that goes...

and it's punchy, it's loud. Prelude in G minor from Rachmaninoff. Okay, we got it. Perfect. It's got to be the weirdest.

It's not weird at all. I like classical music. I just haven't utilized it much in our writing.

Okay, Rachmaninoff, Lithium, Y.J. Lee. An energy transition investor at Arkane Capital Advisors. Thank you very much for joining us.

And we look forward to catching up with you in a few months'time. And hopefully your forecasts will be correct. Thank you, Howard.

Thank you, Rodney. It's been great.

Transcript for:Lithium Market Insights with Y.J. Lee

Transcript for:
Lithium Market Insights with Y.J. Lee