We’ve written a lot before about lithium (which you can find on the blog by using it as a search term) – the usual note is something like “we don’t own any lithium stocks, it’s hurting performance, but we’ll stick with the underweight anyway”.

And that remains the case.

Lithium got a great bid thanks to some M&A coming into the market from Albemarle, the biggest player in the space. Over the few prior months, lithium, the commodity, and the producers, had sold off as new supply comes online, China’s EV subsidies changed, and CATL (big China battery maker) talked to a mix of new technologies, substitute technologies, weaker demand and higher supply.

Alex Turnbull referenced the below graph, in his blog, which depicts the newer sodium-ion (Na-ion) batteries, which are comparable, although still inferior, to the flagship lithium-ion / iron batteries, but have the modest advantage of not bursting into flame, on occasion.

Alex’s point, similar to ours, is that new technologies mean lithium probably won’t be in massive structural undersupply, forever and ever. That means current pricing likely comes down, and by a lot, and many of the listed lithium producers normalise at much lower share prices.

We’ve got alumina, copper, gold, iron ore, and fertiliser exposures in our portfolios, thanks to stocks like AWC, NCM, BHP, IPL.

That “feels” like a decent enough exposure. The direct equity portfolios are meant to be “benchmark like”, at the least (although obviously we want them to be better).

Adding lithium is a possibility, but only at vastly lower prices.

Maybe that’s a reflection of us as fund managers. Usually, with my DAA hat on, I’m pretty positive, on markets, most of the time. Things muddle through, we climb the wall of worry, it pays well to be optimistic.

But with new technology (chatGPT4 is perhaps the only exception) we are normally very pessimistic. Betting against the latest thing is usually the right move. Anytime something is “the biggest”, “the newest”, “the first”, it often ends in tears.

In the above, our example is not so much that Sodium batteries can take a meaningful share of the low end of the market (as a slightly inferior product, at least at this stage) but rather the general idea of “stuff comes along when people are incentivised, and that the odds that lithium is overcooked seem high”.

Another note that, when I read it back to myself, seems oddly unsatisfying, but there you have it.

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