The Bust In Battery Metals

When markets go into bubble mode, the bust is often worse than you thought possible. Often, the reason is that during the bubble, speculative stocks of the commodity get built up. In some commodities, these stocks may not be visible. They may be the result of producers accumulating inventory or work in process, or consumers accumulating inventory. When the bust comes, it may take quite a while for these stocks to be liquidated. This is the story in "battery metals", a group that includes lithium, cobalt, graphite and some others.

Now that we are in the down cycle, let's look at whether there is a long term opportunity here.

I am going to write a series of posts on this. In the end, I'll put it into an article that I'll publish on one of the large financial websites.

For now, here's a graph of cobalt deflated to 2019$. As usual, I am using the PCE deflator. I am also adjusting the price for the value of the $US against a broad index of other currencies. You can see that the price has declined to a reasonable, but not dead cheap, level.

(Click on image to enlarge)