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The Great Lithium Squeeze: Elements by Clara Ferreira Marques

Welcome to Elements, Bloomberg’s daily energy and commodities newsletter. Today’s s take looks at the stunning surge in lithium prices. Back in the world of Europe’s gas crunch, Germany is spending billions more to buy LNG as Chancellor Scholz flies to the Middle East with his eye on long-term supply deals. Finally, to get this email direct into your inbox every week day, click here. 

Today’s Take: Lacking Lithium

A key battery ingredient is once again running wild. Lithium carbonate has just hit a fresh record of 501,500 yuan ($71,500) a ton in China, according to data from Asian Metal Inc. — more than triple where it was 12 months ago.

It’s a surge driven in part by pandemic delays and supply disruption after summer power cuts in China, and in part by demand, as supportive policies globally drive up electric vehicle sales. No doubt thin volumes aren’t helping either. Either way, the result is that, in yuan at least, we’re now above even the “insane” levels Tesla Inc. boss Elon Musk decried earlier this year. Auction prices of partially processed lithium in Australia has also hit a record today.

It’s all squeezing manufacturers:  Bloomberg News reports the battery-making unit of Ganfeng Lithium Co. is reassessing prices as cell costs rise, while EV producer Nio Inc. has pointed to crimped margins.

Pressure isn’t easing any time soon. Further up the supply chain,  auction prices of partially processed lithium in Australia have also hit a record today. China’s power troubles aren’t completely resolved, and Beijing’s efforts to tell major players to help keep prices stable can’t change the underlying dynamics. Consider the China Passenger Car Association has raised its new-energy vehicle sales forecast for 2022 to 6 million — twice last year’s total. Yes, there are plenty of lithium projects that will eventually boost capacity as the decade progresses, but costs are rising and a lot of tons are supposed to come from fresh entrants or from newer technologies, and could easily face delays.

That adds up to cheer for the likes of SQM, the world’s No. 2 lithium producer, who gave a bullish picture of a “very tight” market last week. But it’s a worrying bottleneck that could delay the point at which electric vehicles reach price parity with the traditional, polluting kind.

For the US and other governments, fretting about access to critical minerals and China’s dominance, the tight market should be a reminder of why steps like the US Inflation Reduction Act — with its measures to bolster mining and processing capacity — matter. But it should also be a cue to invest more aggressively in reducing mineral intensity and, just maybe, in supporting alternative battery chemistries too. 

--Clara Ferreira Marques, Bloomberg Opinion

Chart of the Day

With the prospect of aggressive US monetary tightening on the horizon, it’s no surprise that gold’s prospects have been looking a little tarnished. Holdings of bullion-based exchange-traded funds have been sliding since April, and hedge funds and money managers have turned net bearish, according to Commodity Futures Trading Commission data.

But given the context, the yellow metal, trading close to $1,670 a troy ounce on Tuesday, is down a relatively modest amount this year, and that’s in large part thanks to geopolitical risks. At the Denver Gold Forum this week, miners are predicting an increase to just over $1,806 by the end of 2022. The last time gold settled at that level was in early July.

Today’s Top Stories

The German government released another 2.5 billion euros ($2.5 billion) of credit lines to secure gas supplies, as it writes off Russia as a reliable energy supplier. Meanwhile, Chancellor Olaf Scholz will fly to the Middle East later this week with an eye on long-term energy deals.

Swiss imports of Russian gold surged to the highest in more than two years, a sign that more old bullion from the country may be being remelted to make it easier to sell.

Europe’s drive to wean itself off reliance on Russian energy is making headway as the continent increasingly turns to rival suppliers in the Middle East for supplies of diesel fuel.

Saudi Aramco said a lack of investment in fossil fuels was to blame for the global energy crisis and warned that spare production capacity in the oil market might be wiped out once economies rebound.

The United Arab Emirates is responding to a possible supply crunch by accelerating a plan to raise its oil production capacity as it tries to cash in on its crude reserves before the world transitions to cleaner energy.

Best of the Rest

• Russian newspaper Kommersant writes that Moscow plans additional taxes on commodity producers to top up budget revenues. The plan, which the paper says includes increased export duties, will be discussed on Tuesday. The levies could amount to more than 3 trillion rubles ($50 billion) of extra revenue in 2023-2025.

• An editorial in El Pais, titled Shadowy Commodities, argues the commodity trading industry needs to be better regulated (and better taxed).

• The South China Morning Post reports on Chinese local governments’ efforts to revive the property market (and their revenues) and how those are running up against Beijing’s attempts to cool prices, forcing the rapid reversal of some high-profile concessions made in second-tier cities.

• In an article in Foreign Policy, Morgan Bazilian of the Payne Institute and Gregory Brew of the Jackson Institute for Global Affairs at Yale University look into what the US Inflation Reduction Act will do for the domestic supply of critical minerals required to expand electric vehicle production, batteries and renewable power. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Clara Ferreira Marques is a Bloomberg Opinion columnist and editorial board member covering foreign affairs and climate. Previously, she worked for Reuters in Hong Kong, Singapore, India, the U.K., Italy and Russia.

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