I’ve seen it happen with so many niche commodities – potash, graphite, antimony, rare earth metals, cobalt, vanadium – and I am pretty sure it is happening again.
There is some commodity you’ve barely heard of. Suddenly it’s essential to some new technology which is going to save the earth in some way.
But nobody’s producing it.
Why is nobody producing it, if it’s so essential? Because prices are so low.
Prices then start going up, because everybody wants it and nobody’s producing it.
Suddenly, a load of natural resource companies which aren’t going anywhere, especially in Canada and Australia, “change their focus”. They start exploring for said commodity. Some of them acquire half-explored development projects and redrill them.
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Investment capital piles in. Some of the above companies actually make discoveries that start producing. Existing producers up their output.
Within a few years, there is a surplus of said commodity, where once there was a shortfall, and the price comes back down again. The bigger the previous rocket launch, the bigger the subsequent crash.
Those companies that aren’t profitably producing hit the skids. Those that have to tighten their belts. The bull market has morphed into a bear.
Nothing fixes high commodity prices like high commodities prices runs the adage.
If you can time these cycles well, you can make a great deal of money. But you can also lose a lot of money.
The bull market in an essential commodity bursts
I think we are seeing one such turn right now in lithium. Perhaps in the broader battery metal space.
Fossil fuels are destroying the planet. Electric vehicles are the answer. But do they need lots of lithium? Yes. Who makes lithium? I don’t know. But the price is going up. Quick, let’s invest in lithium. Let’s start a lithium company. Lithium is going to save us. Tesla can’t get enough lithium. Tesla’s going to buy a lithium company. Lithium, Tesla, EVs, Net Zero, Climate Change, BUBBLE!!!
Much as I love niche commodities for these repeating cycles they display, I’m afraid I missed the lithium bubble. I didn’t catch the early phases of the bull market when it had a good run in 2016 and 2017.
In 2018 and 2019 the lithium companies had a miserable time, and I felt somewhat vindicated. But since the Covid lows of 2020, they exploded – I missed that one too, as I was away with other commodities – until the companies peaked in late 2021.
I felt I was too late to join the party. I clicked my tongue as the price went up without me. I clicked my tongue even more as the bull market went on for longer than I thought. I then watched with a certain amount of confusion as the companies pulled back while the price of lithium carbonate kept on rising. That’s not normally a good sign.
In any case, now the price of lithium carbonate has stopped rising. In just a couple of months, it’s lost over 30% – having risen tenfold.
Here’s the price action since 2017.
