Lithium | 2021 supercharge?


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Comments of the Day

12 February 2021


Video commentary for February 11th 2021

Eoin Treacy’s view

A link to today’s video commentary is posted in the Subscriber’s Area. 

Some of the topics discussed include: bitcoin and altcoins continue to firm, stock markets steady, bonds ease, Dollar remains susceptible to additional weakness, oil steady oil services potentially bottoming. 


Email of the day – on bitcoin and cryptocurrencies:

Having reached a certain age, I confess to being a Bitcoin sceptic. I thought today’s piece on Twitter by Nouriel Roubini just confirms my anxiety regarding digital currencies. He’s no fan!


Eoin Treacy’s view

Thank you for highlighting this article which may be of interest to subscribers. Here is a section: 

Vitalik Buterin, a co-founder of the cryptocurrency Ethereum, argues that no crypto can be at the same time scalable, safe and decentralised. Traditional financial systems are scalable and safe: if your credit card or bank account is hacked or stolen, you are made whole. But they are centralised because participants and assets are verified by trusted institutions. Right now, crypto is neither scalable nor safe. If your private key is stolen or lost, the assets are gone for good.

It isn’t even decentralised. Oligopolistic miners control most bitcoin mining. Many are out of reach of western law enforcement in places such as China, Russia and Belarus, creating a national security nightmare. About 99 per cent of bitcoin trading occurs on centralised exchanges, which may be hackable. Furthermore, the original programmers retain outsized control over their creations. In some cases they act as police, prosecutors and judges, and reverse transactions that are supposed to be immutable. Nor is crypto equitable: a small number of “whales” control much of bitcoin’s value.

This undermines claims that crypto will decentralise finance, provide banking services to the unbanked, or make the poor rich. Blockchain claims to enable cheap money transfers to refugees, but crypto is much more likely to provide cover for scam artists, conmen, tax evaders, criminals, terrorists and human traffickers.

There are a couple of points that one needs to consider with the above account. The first is that there are well understood limitations with bitcoin. It is decentralised, supply is limited and the speed of transactions is extremely slow. The need for forks every time a change is required makes it unwieldly. It stands to reason that if cryptocurrencies are eventually going to fulfil their promise it will be without bitcoin.


Almost Daily Grant’s

Thanks to a subscriber for this edition of James Grant’s free eletter. Here is a section:

A similar trend is visible in the more speculative corner of the corporate bond market. Analysts from Barclays reported last week that average duration in high-yield debt has jumped to 6.7 years, compared to 6.1 years at the beginning of 2020.  Similarly, the effective yield on the ICE BofA US High Yield Index reached a record low 4.12% yesterday, down from 5.19% a year ago.  Meanwhile, Bloomberg reported Friday that a voracious hunger for yield has left junk bond investors “calling up companies and pressing them to borrow, instead of waiting for bankers to bring new deals to them.” 

“It’s kind of wacky,” Jim Shepard, head of investment-grade bond issuance at Mizuho in New York, told the Financial Times yesterday. “At a time when you would want greater insurance against a rise in interest rates, [people] are buying something more exposed to it.” 


Eoin Treacy’s view

It is impossible for the US government to fund itself given the current trajectory of the deficit and the purchases currently being made by the Fed. That puts upward pressure on bond yields because the government will be more dependent on the market to soak up supply.


Lithium | 2021 supercharge?

Thanks to a subscriber for this report from Canaccord Genuity. Here is a section:

We estimate 2020 supply lifted 11% YoY to 340kt, noting lower capacity utilisation as largely a function of bottom-of-the-cycle pricing through 2020. We anticipate that a majority of the ~460kt of cumulative potential capacity that was delayed/deferred over the last ~18 months could remain suspended pending a recovery in pricing to higher levels. Recent consolidation among concentrate operations (i.e. Altura>Pilbara, Wodgina>Albemarle) now sees control of large scale, marginal cost production lies with a small number of established producers who, in our view, lack incentive to switch on large volumes of new supply.

We further note that long lead times to delivering new capacity means that the +US $4.4bn in new equity raised by lithium companies since the start of 2020 is unlikely to lead to a meaningful supply response until the mid-2020s, by which point we expect the market to move into deficit. Our revised market balance forecasts now call for more modest market surpluses (5-7% over 2021-23), with our higher rates of demand growth now expected to outpace supply growth out to 2025. Beyond 2025, we continue to forecast significant market deficits, noting a ~7x increase in supply (i.e. ~240ktpa average increase in capacity) is required to meet our 2030 demand forecast.


Eoin Treacy’s view

A link to the full report is posed in the Subscriber’s Area. 

Supply Inelasticity Meets Rising Demand is the foundation of commodity bull markets. Lithium has been through one big boom and bust cycle already and perhaps the major producers have learned their lesson. The initial mining investment boom occurred almost a decade ago. That resulted in a lot of new supply hitting the market which depressed prices. It has taken significant growth in demand for electric vehicles to soak up that surfeit.


Email of the day on the global asset filter list:

Your 10th Feb talk refers to your Global Assets list. I can’t find the list. Is it in your Favourites section?


Eoin Treacy’s view

Thanks for this message. Sarah, uploaded the complete list from the Global Themes Performance Filter I posted yesterday into the Eoin’s Favourites section of the Chart Library.


Eoin’s personal portfolio – stop triggered on hedge position

Eoin Treacy’s view

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change.


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