Lithium - A bubble within a bubble?

Okay, first things first.  All you Lithium bulls, pumpers and shills.....relax.  If you're hell bent on reading this little blog piece then take a chill pill.  Grab a beer or a glass of wine and try not to get worked up.  

Yes I am going to express the opinion that Lithium right now is bubbling, but don't worry.  This is a teeny tiny obscure little blog, I'm not on CNBC or ABC Nightly News or anything like that.  

Think of the market as being a hurricane, with the winds and rain representing the torrent of news and information available.  Within that hurricane I'm a guy with a squirt gun, and not a big one, not one of those super soaker thingies.  All I have is a one of those little hand held water shooters, the kind with four little finger slots that allow you to hide it from the teacher in the palm of your hand.

Bubble markets are funny things....those who suggest a bubble when prices are still percolating, they're usually attacked as being idiotic morons who don't have a clue.  Watch Peter Schiff get attacked for expressing the view that the United States was heading for a huge correction in the housing market and a massive recession back in 2006.  

The guy saying Schiff is out to lunch....to me he sounds like the guys who hype speculative stocks, supremely confident and as it often turns out...supremely wrong.  Those who listened to Schiff and acted accordingly were in in the pink.  But I bet most listened to the permabull instead.  He was strong forceful and confident, telling people what they wanted to hear....and that's what the sheep love.

So why do I think Lithium is a bubble?  And what do I mean by a bubble within a bubble?  Of course I will explain.

Markets are all about supply and demand, that's obvious.  And with Lithium demand exploding there is a supply constraint currently, however I don't expect that constraint to last.  While it does however Lithium prices will continue to be robust.   But I do expect supply to catch up to demand and for prices to fall sometime within the next two to three years.  

The reason I think prices will fall is because of the second bubble, the explosion in Jr Lithium miners bringing new supply to the market.  Some like Orocobre have already started producing, with Galaxy slated to be shipping within perhaps mere weeks.  Others like Neometals, Nemaska and Lithium Americas are getting close.

Now, some will suggest that with Tesla and other car manufacturers jumping into the EV space...that these companies will buy every gram of Lithium that comes on stream now and for at least a decade or more. I however disagree.  

That's what American housing bulls were saying in 2006, that "this time its different"....demand will not abate. Everyone needs a place to live, immigration and tightening supply will drive prices higher and higher they said...and they were wrong.

That's the pumper narrative with any and all bubbles "this is different".  Those who profit from the bubble want the party to go on forever, and some probably even believe it, that the music will never stop playing.  

Do note that I see the music continuing for another 24 months or so, and that there will be winners. The big 3 incumbants: Sociedad Quimica y Minera S.A.  Albermarle, and FMC Corp as well as newer producers like Orocobre and Galaxy.  Of course with those big 3, Lithium is but a small component of diversified businesses, so they probably will not perform as well as some smaller "pure play" miners.  But with that being said, they also won't correct as severely as the smaller players when the bubble inevitably bursts in my opinion.  

Those companies that are able to bring Lithium to market before supply explodes should also do well I believe.  Juniors able to start selling Lithium before the supply crunch ends will probably do better than existing producers over the next couple of years I believe.  

There will be losers too of course.  Those companies that came late to the party, that were too busy buying an outfit and getting their hair done....they'll show up just as the excitement wears down.  I'm talking about companies that are currently touting their "Lithium Projects" but who don't have things like resource estimates, feasability studies, building or mining permits.  These late comers have a huge game of catch up to play, and even if they succeed in bringing a mine or mines to production, the supply crunch fueling the Lithium pricing bubble I perceive currently...I expect it will have largely disappeared by the time they start delivering product, if they even get that far.

Comments are welcome....however they are screened before being posted.  All I ask is for a mature respectful tone, and if you have an opinion express it as such....not as fact.  I have expressed my opinion on what is coming in the next couple of years for the Lithium space, but it is just opinion and it could be wrong.