Lithium as the New Gasoline?
The self-created mythology that Goldman Sachs invented the BRIC economies has now been found to be a fallacious construct. The fact that many actually thought the plural of the Brazil-Russia-India-China acronym, that basket-case South Africa on the tail-end, shows how nebulous and “in the eye of the beholder” the whole thing was.
However, despite its faults BRIC set the tone for a decade and a half of boisterous developing markets and had a part to play in the almost simultaneous Commodity Supercycle. Along the way Goldman made a lot of money, as it does…
Now, however, Goldman has come up with the rather glib soundbite that “Lithium is the New Gasoline”. Even the most shameless Vancouver promoter would not have coined that clanger and everyone I know in the lithium space thought it not much more useful than for a bit of a laugh.
We shall look at this “claim” in the light that, dare we say it, we know something more about the subject than Goldman Sachs.
Means of Production Versus an Input
Everyone knows the combustion engine runs on gasoline (or diesel) and that the motor is generally made out of metal as is the fuel tank. The car does not run on electricity, per se, so the battery, made out of lead mainly, stores electricity generated by the car’s motion to power the ignition, the instruments, lights and windows, etc. The gasoline powers the car not the metals it is made of.
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In an electric car or a hybrid, the car is powered by electricity (along with gasoline in a hybrid). The car is most definitely not powered by lithium. The lithium is what the battery in the car is made of — not what powers the car. So we have an apples-to-oranges comparison between lithium and gasoline, and few seem to have noticed the flakiness of this simile.
What is the Goal?
The market has become rather cynical about the pronouncements of Goldman Sachs on issues such as this. It tends to be that a counter-intuitive approach is taken by investors when they hear comments emanating from the bank’s strategists and analysts. “Go long gold” or “oil is going down” makes the market think the company has a long or short position opposed to what it is telling the market.
The actual article on lithium as gasoline is a mere three pages long and really quite surprising for an institutional investor-focused investment bank. It reads more like a Vancouver newsletter writers’ promo pump from 2009 when no-one knew what lithium actually was. The main thesis is, not unsurprisingly, concerned with the rise of electric powered vehicles. The statistics gurus in the industry, signumBOX, have been projecting (see chart below) that lithium chemicals used in cathodes within rechargeable batteries would be increasing by increments rising from around 10,000 metric tonnes of lithium carbonate equivalent (LCE) per annum at the moment to around 25-30,000 tpa by 2025.
The Goldman piece (without a source for the projection — themselves?) states: “Total lithium demand today is 160,000mt of lithium carbonate equivalent (LCE) per year. We estimate that a 1% increase in battery electric vehicle (BEV) penetration would increase lithium demand by 70,000mt of LCE/year (or roughly half of current global demand for lithium)”.
According to signumBOX numbers from last October, LCE used in rechargeable batteries was only 75,000 tonnes per annum, so less than half what Goldman is claiming is being used. I know whose numbers I would trust.
When Goldman tossed its nugget of wisdom on lithium into the market it fortunately came when most participants had solid fundamental reasons for liking the metal and were not sitting around depressed, as they were early last year when they were waiting for the Great & Good to give lithium the OK. Thus the contribution from Goldman was not really either needed nor helpful. Indeed it looked rather gauche.
With dubious statistics of its own imagining, the article was launched upon an unsuspecting world. For once the mining world knows better and was able to give the “soundbite” the treatment it deserved.
Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>