Lithium market meltdown: is the future cancelled?

Adam: [00:00:25] Hello and welcome to comedian versus economist. We demystify the world of money and help you get a handle on the bigger picture. My name's Adam and we're joined, as always, by my little older brother and real life economist Thomas. Hi, Thomas. 

Thomas: [00:00:39] Gday Adam, how are you going?

Adam: [00:00:41] Going very well, thank you. Before we start the show, we have got a small favour to ask. We're coming to the end of the financial year. Just taking stock of where we're at. Through our stats, we know we've got one of the highest listen through rates in the industry. Now we're on a drive to grow our listener numbers. So if everyone who listens to the show tells just one person, that would be incredible and would make a real difference for us. So if you know one person who is intelligent, curious about the world with a good sense of humour, please tell them about us or tag them in one of our social posts. That would be amazing. Thomas, of course. Big show, as always. Coming up, lots to get into. GDP and labour unit costs are out. I assume we're talking about the cost of having a baby being one unit of labour. Elon Musk says anyone who doesn't want to work in the office will get the sack. Another way of looking at that is a man who sells cars insists his employees drive cars more. And investors are turning their back on lithium. We'll see what they think of the other tracks on Never Mind Classic. And Malaysia has decided to hook the chalk, which has left Singapore shook with no chook to cook. We'll open the book and take a look. But first. 

Adam: [00:01:59] We have got some listener email that came through that blew my mind. And I didn't. I don't know what the start of the apocalypse was going to look like, but I actually think this might be it. So we got an email during the week. Send us an email CV at Equity Mates dot com. And Phil said that basically his electricity retailer has emailed him saying, look, to be honest, we think you should go somewhere else. They said, look, your costs are going to be higher. So they're higher costs. We're going to have to be passed on to all your customers. This is after they sent through a 20% price increase a few weeks ago and last week we were talking about skyrocketing energy prices or electricity prices. But this time this is unheard of, isn't it? An electricity retailer asking customers to go somewhere else? 

Thomas: [00:02:55] Yeah, I mean, I haven't heard of it before like in Australia, but um, yeah, it is kind of as we've seen last week. Wholesale electricity prices have exploded, they're through the roof and then retail's getting hammered. So the thing that the revamped Energy's CEO, Luke Linkov, said that we're hoping that things return to normal when wholesale prices are lower than the retail price. But that's not that's not the case today. So they're losing money selling to people. So maybe like, I think I think as easily as like a clever marketing play here, which is like, hey, look, we're the super honest guys. We just want you to get the best deal. And the best deal was not with us. So go somewhere else and hope you come back, which could be could be smart marketing or it could be, look, you guys are costing us money, so just be great if you just went somewhere else. Thanks. 

Adam: [00:03:43] Well, I think that's the argument they're making. They're saying, look, you should switch to another retailer because the more customers they have, the higher their costs will be for all customers. But I can't wrap my head around how that could possibly be. Like don't doesn't I don't know. I've heard the phrase economies of scale somewhere, which I've always assumed to mean that the bigger you get, the cheaper things become. But that's not happening. So could it be that the more customers they have. 

Thomas: [00:04:10] I feel like you're just confused. This. I am. 

Adam: [00:04:13] Well, that's not surprising.

Speaker 1: [00:04:14] Yeah. Yeah. 

Thomas: [00:04:17] I didn't know. I didn't read that. And it doesn't sound entirely right now. 

Adam: [00:04:20] That's. Well, that's what Phil said. I'm just. Look, I'm just telling you what the people tell me. I don't think I'm adding any layer of sensibility over the top of of what we get. 

Thomas: [00:04:33] There must be some economies go, I don't know, maybe there's something there. I don't know. Maybe that maybe the more they buy the like to sort of to secure more on the wholesale market, they've got to pay more. Like it maybe it ratchets up the more they buy. 

Adam: [00:04:45] Hmm. 

Thomas: [00:04:46] But I think we did. We did. Night last week. The retailers will be the first sort of domino to fall in this story. And in Britain, there were 30 retailers have already gone out of business since prices started lifting so well. More pain in store for retailers in Australia. 

Adam: [00:05:01] Hmm. Also had a few people Thomas email in to say that coal fired plants use turbines and not reactors. You idiot. I'm paraphrasing, but I thought it was. Well, no, because you said you said reactors and yeah. Should have been turbines. So there we go. Keep your emails coming in CV at Equity Mates dot com and. Of course, you can get us on social media, on Instagram and Facebook at CVE Podcast. Thomas GDP data out this week. What did we learn? 

Thomas: [00:05:34] Yes, GDP came out stronger than expected. Actually, we got a pretty solid 0.8% in the quarter, up 3.3% on the year. That's there were pretty healthy numbers across the components, all looking pretty healthy. Consumer spending is looking strong. Discretionary spending actually is up above where it was pre-COVID now for the first time. So nondiscretionary has been trending upwards like stuff that you actually need, but stuff you don't need so much that's now back above where it was pre-COVID. So that's a that's a good news story, particularly given, you know, there's a little still COVID lockdowns and floods and things through that March quarter. So, yeah, all in all, pretty, pretty solid. Everyone. 

Adam: [00:06:15] Everyone. This is the Labour Party claiming this. 

Speaker 1: [00:06:21] Been in for a week. Yeah. 

Thomas: [00:06:23] No they actually basically came out and were were talking it down saying it's a lot of challenges here, a lot of crazy. Yeah, yeah, yeah. And because it's probably going to it looks like GDP is going to come in under weather the under the budget forecasts now with these numbers. So even though it's a pretty decent number, we were forecasting some really good numbers six months ago. So we're not going to hit those numbers. So, yeah. Jim Chalmers was the Treasurer was keen to point out that. Yeah. Not as great as it could have been. 

Adam: [00:06:54] Right. Well Jim Chalmers being the Treasurer I was, I was on board with Frydenberg for so long. 

Speaker 1: [00:07:00] From throwing the. 

Adam: [00:07:02] Whole world into. 

Thomas: [00:07:02] Chaos. The thing that really jumped out at me, which I found was interesting, is we also get some kind of pay data of a kind in the in the national accounts and we have something called real average compensation per employee. Oh yeah.

Adam: [00:07:18] Yeah, yeah. We get to. 

Speaker 1: [00:07:20] Hear something. 

Thomas: [00:07:23] Like wages. We have a few measures of wages, but this is a real average compensation per employee. But that's down now and that's back. We're now back at where it was in 2011.

Adam: [00:07:32] Right. So what does that mean? 

Thomas: [00:07:34] Well, it means that kind of real wages have gone nowhere for the better part of a decade. 

Adam: [00:07:41] We knew that already. 

Thomas: [00:07:42] We we didn't do that from the wage price data. But yeah, this confirms it. 

Adam: [00:07:47] Accurate economists had nothing to do after the wage price data. Now what can we do? Well, why don't we just see if we can prove it again? Well, well, yeah. We'll call it something else and will prove it again. And we'll release it as a report. Brilliant. I like that report. Did you say? Yeah. 

Speaker 1: [00:08:11] More and more. A table, actually. 

Adam: [00:08:14] Or stuff. 

Speaker 1: [00:08:14] A table? Hmm. Yeah. 

Thomas: [00:08:18] But the average compensation employee allows us to calculate something called unit labour costs. And so that's some measure of how much labour cost is involved in each unit of economic production in the economy. If you can wrap your head around that, it's a bit of an abstract concept, but basically for a given unit of economic output, how much labour cost was involved? That's unit labour price. 

Adam: [00:08:42] Can you give me an example just because I am having trouble having my head around it? 

Thomas: [00:08:46] So no, it's an abstract concept that doesn't have a name.

Speaker 1: [00:08:56] Right. Okay. Yeah, no, like.

Thomas: [00:08:58] It's a measure. Lexi. The question is how much labour cost is involved in producing everything we produced, and if we sort of put that on a per unit basis, per dollar of economic activity, how much is that? How much labour cost is is involved per unit of economic activity? 

Adam: [00:09:17] So make sense. We did it. 

Thomas: [00:09:18] I suppose what that measure includes is productivity. So if people get better at producing stuff then for the same amount of cost they're able to produce more. So you get more units out of the same, the same costs. So that incorporates productivity. 

Adam: [00:09:35] Is this a bit like your chart that you shared to Instagram during the week that showed fuel prices? We're getting more efficient. Fuel's getting more efficient. So even though fuel costs might be going up, you're getting more value for your fuel. 

Thomas: [00:09:46] Yeah, yes. Yeah, that's exactly right. Yeah. Like, yeah, that chart showed that per litre the cost of fuel is going up, but per mile the cost of fuel is going down even though prices are going up per litre. 

Adam: [00:09:59] Oh, good. Yeah, you might even call it a good example. 

Thomas: [00:10:03] So anyway, so increase productivity. But what? So what? That showing is unit labour costs fell sharply in the quarter and then now about 6% lower than they were pre-COVID. All right. So what that tells us is that the idea that labour costs are on a on a tear away and they're going to blow up the whole economy, there's no basis for that yet in the data. Labour costs are falling and falling quite quickly and it's 6% lower than they were pre-COVID. So it's a long way from that data. There's nothing to back up the argument that wages are exploding and blowing out inflation. 

Adam: [00:10:41] But who's making that argument, though? We just talked about wages data as the worst in ten years. Now it's talking about. 

Thomas: [00:10:47] No, no, no, no, no. The business community is quite like, you know.

Speaker 1: [00:10:50] Pushing back all this sorry business. 

Thomas: [00:10:54] They're pushing back because the Fair Work Commission is meeting now. They're looking at determining wages. Everyone's saying, whoa, whoa, whoa, we can't afford an increase in the minimum wage rate. It's going to blow out inflation and create all sorts of problems. There's no doubt there's no data yet about how. 

Adam: [00:11:10] Argument Labour came out. They have followed through, have an eye on their election promise to increase the minimum wage. 

Thomas: [00:11:16] They know they made a submission to the Fair Work Commission, which they promised to do, arguing for a 5.1% increase to the minimum wage, but to the minimum wage only. That's what they're arguing for that and that's just in line there. That just keeps pace with inflation and probably once inflation keeps going higher, leaves workers actually falling, having falling wages still.

Adam: [00:11:37] Okay. Just quickly, if I go back to the GDP thing for a second, I saw something on the news that because of the natural disasters like the floods and everything, the GDP was stronger than expected. Is that that right? Typically, yeah. 

Thomas: [00:11:49] Typically disasters are a good news economic story in the in the clean up and the and the repair and rebuild a lot of economic activity goes into. Yeah. Putting bridges and. 

Adam: [00:12:00] Fingers crossed for an oil spill in the Barrier Reef then should really get things humming along. Thomas. Elon Musk is back in the news. He never leaves the news is back in the news this week, this time telling people that they should be working in the office full time. Is that right? 

Thomas: [00:12:18] Yeah, that's right. So he's apparently, as a leaked memo that we saw saying remote work is no longer acceptable, saying that anyone who wants to work for Tesla must do a minimum and I mean minimum of 40 hours a week or leave Tesla. This is less than we asked factory workers. Yeah. So and then someone in Twitter said, can you give us some additional comment to people? We think coming into work is an antiquated concept. And Musk wrote, well, they should pretend to work somewhere else. So he's saying work from home is not working. People are plunging and they need to. 

Adam: [00:12:51] I anything pretending to work is the exclusive domain of the work from home. I've seen plenty of people pretending to work in the office, but I'd argue I've got so good at it that I can pretend to work just about anywhere. I just set me up. 

Speaker 1: [00:13:08] Even.

Adam: [00:13:08] At home. Sometimes I pretend to do jobs around the house so I can get out of bathing and kids. 

Speaker 1: [00:13:16] Just go. 

Adam: [00:13:17] There. It's like the thing with, you know, the corner. 

Speaker 1: [00:13:21] They fixing, right?

Thomas: [00:13:24] This is interesting for a couple of reasons. Like, one, like Tesla has sort of tried to make itself synonymous with the future. So it's like it is paints itself as the company of the future. So in this sense, it feels like a very backward move moving to full time in the office. No, like a lot of the tech sector like Twitter and Atlassian got involved in this conversation as well. They've gone like full time remote forever. That's that's Twitter's policy. So it does feel out of step with the tech sector. It also comes at a time when the labour market is very strong. So we got jobs data in the US last week. They've got 436,000 jobs that was stronger than expected. Unemployment rates, 3.6%. That's very tight. So it's a workers jobs market and like you would expect a lot of people to just walk. If Moscow is hard with this, if that, you know, engineers with really solid skills might just be like Vietnam out. But then we got another leak from an internal email so like it could. 

Adam: [00:14:29] Be like it wouldn't happen us if everyone was in the office and transacting securely. 

Speaker 1: [00:14:35] Yeah.

Adam: [00:14:36] I think notes around the office. Yeah. But there's a. 

Thomas: [00:14:38] There's another memo called pause all hiring worldwide and saying that Tesla is going to cut 10% of its thousand strong workforce. Yeah. And then Elon Musk says that he's got a super bad feeling about how the economy is going.

Speaker 1: [00:14:53] Well, it's always. 

Adam: [00:14:54] As an economist, what do you make of his super bad feeling? Is Elon Musk's spidey sense as a team player? 

Thomas: [00:15:01] It is true. I mean, I think the interesting thing probably when you're in the tech sector, you probably equate your fortunes with the broader economy. And Tech's had a massive sell off. Tesla's shares are down 41% since the start of the year, just 9.2% last week. So yes, big shake out in tech, but I don't know that that's you then say that the whole economy is is struggling. There are definitely challenges, but things are running, you know, pretty hot right now. I actually love the Joe Biden came out and sort of saying that, yeah, well, Ford's building new electric vehicles, the 6000 new employees, union employees, I might add in the Midwest, Intel is adding 20,000 new jobs making computer chips. So, you know, lots of luck with his trip to the moon. So Joe Biden is trolling Elon Musk. This is where we live in Hollywood. Yeah, but there's in the point is like yeah like 3.6% the unemployment rate is super tight. Like things are really strong. Yes, there are challenges. There's a lot of doom and gloom around at the moment. The bears are pretty noisy, but I think a lot of like a lot of the a lot of it has been a correction from the quantitative easing and super cheap money.

Adam: [00:16:12] So essentially Musk is trying to blame the economy for Tesla not doing well. Is that what it boils down to?

Thomas: [00:16:18] Yeah, I think I think maybe you could Awlaki's positioning for that and saying yeah big challenges for Tesla. I think I think definitely he's he's saying that there are big challenges ahead for Tesla. He's saying those challenges are tied to a bad economy or his super bad feeling about the economy. But they may just be you know, Tesla's still still a small order maker in the scheme of things with a massive valuation. You know, it's worth at some point there in 2021 that was worth as much as every other automaker in the entire world. 

Speaker 1: [00:16:50] And so ridiculous in hindsight. 

Adam: [00:16:52] But at the time I remember reading it and go, Wow, that's impressive. 

Speaker 1: [00:16:55] Like, yeah. Yes. He's got like. 

Thomas: [00:16:59] Massive, like, promise of potential that he has to deliver on. It was always going to be massively hard. I think that sort of is meeting that reality. And I think I think we are in an interesting inflexion point with with the global economic outlook. Like I think a lot of that unwinding of quantitative easing and super cheap money. I think a lot of that has been priced in. It's now in people's expectations and then there's concerns about how inflation plays out and the war in Europe and hard landing in China and all of that. But they just remain risks for the meantime. They're not like baked in. And so, yes, there are big concerns about the economic outlook, but a lot of it is kind of priced in and it could just ride along from here. I don't know. It's not it's not clear. 

Adam: [00:17:44] Why don't we pause here or grab a word from this week's sponsor? After the break, we're going to be taking a look at what has happened to lithium, as well as Malaysia is banning chicken exports. We'll be back with more comedian versus economist right after this. Good night. Welcome back here on Canadian versus Economist. Don't forget, you can send us an email at Equity Mates dot com or get us on social media at CVE podcast. Thomas, is this the end for lithium? 

Speaker 1: [00:18:15] Hmm. Yeah.

Thomas: [00:18:16] No, I think. Well, no, no. 

Adam: [00:18:18] Does it lithium. Have we made all of the batteries now. 

Thomas: [00:18:23] Yes. Yeah. You want is lithium had a had a rough week last week. Well the lithium miners in particular had a really rough week in Australia. You've got the ASX, you've got Pilbara Minerals were down 22% on Wednesday, Lion Town Resources down 19%, El Kim down 15%. So big drops in these lithium miners. I mean that said though line to line town resources is still up 100% on where it was a year ago. So it's still doing okay. But sort of the gloss has come off lithium as a concept really. So and a lot of this had to do with a report from Goldman Sachs is saying that basically just lithium is overbought. Investors are aware that battery metals are going to have a big role to play in the 21st century. But despite the exponential demand profile, we see battery metals, bull market as over for now. And they're now calling for a price correction in lithium. So it was at 60,000 USD a tonne at the start of the year. They now see it going to 16,000 in 2023. So is a huge drop in in lithium prices, which they're calling for. But the basic basically story saying is you just got overhyped and they're saying like the lithium spot price of a commodity ended up trading like a forward looking equity. That's what they're saying. So it was like all about the future of of lithium, not about the the current market reality demand supply of lithium to go to overbought. And then you had this huge surge of investor capital into lithium miners, which led them to massively increased output capacity. And as a result, the market's just run ahead of lithium demand. And you now have more lithium production than you have lithium demand. And the result of that is falling prices. 

Adam: [00:20:10] This feels a lot like crypto. This this if crypto is for like millennials and Gen Z or whatever, then this feels a lot like kind of crypto for grown ups or something. Like if I was at a, I was at a Quiznos night the other night and the guy's chatting to Paige, shout out to Jeff is this thing he was lamenting to me that he'd missed out on lithium. He's like, I should have got in, should have should have bought lithium when I had the chance. And even then it was even speculating, saying, I've heard a rumour, tungsten and cobalt, mining the next big things, and it just felt a lot like a crypto conversation I'd had, I've had in the past with other people. Like, Oh man, we missed the bitcoin thing, but Tara is coming along next or whatever the next coin dogecoin and that's going to be the next one, the moon. So you know, get on, you know, replace tungsten with your favourite crypto coin and maybe that's next. Moon Like, I don't know, it just feels a lot like you're getting a lot of spiky speculative plays in the, in the mining space nowadays. 

Thomas: [00:21:23] Yeah. I mean I think, I think this is, this is the big criticism of super cheap money is that you create these speculative bubbles and like I think, you know, cryptocurrencies since since quantitative easing ended, you've seen a lot of these trades on Warren. So US Tech's unwound. Teslas unwound in a big way, cryptos unwound in a big way. And now you've got lithium unwinding as well. And it was sort of all that money was hunting for returns and looking for places to go up. And because all that money's landing in the same markets at the same time, you do get these price explosions, which then confirms everyone's expectation that lithium is the next big thing and it keeps going up until it as like the market fundamentals become disconnected from the market fundamentals. And that's what's the lithium the Goldman Sachs is saying lithium story is it's just became this disconnected from where the market is currently at. In the future, we probably are going to need this much lithium supply, but right now we just don't to becomes disconnected from market fundamentals. And then once the money stops coming in and bit like a Ponzi scheme, then, then, then the souffle collapses. 

Adam: [00:22:32] I think the big the one that cemented it for me was I was at the casino the other day and that actually replaced the roulette table with just the periodic table. All right, Thomas, another country is set to restrict exports this time. Malaysia has said they are going to stop exporting chicken. What's going on there? Yeah. 

Thomas: [00:22:56] So, yes. So this week we're talking about Australia triggering the domestic gas reservation. Malaysia has triggered the domestic chicken reservation. They're not interested in exporting any more chickens because prices are just exploding at home. Right. So, yeah, they're holding onto their chickens. 

Adam: [00:23:13] Definitely not free range. And I'm. 

Speaker 1: [00:23:16] Keeping them. 

Adam: [00:23:17] Close to their chest. 

Thomas: [00:23:18] Yes. And that creates some big problems for Singapore in particular. So Singapore is really reliant on on chicken exports from Malaysia and Singapore staple dish is something they call chicken rice and exotic. 

Speaker 1: [00:23:31] Yet in that. 

Thomas: [00:23:34] Yeah. But like a country like Singapore I think is is interesting because it's you know, it's got no it's just an island, a big urban island, basically. So it's really reliant on it's always been reliant on global trade. But you have this sort of commodity nationalism coming up that sort of started with sort of key minerals and energy, but is now becoming going into food. We talked about India banning wheat exports a couple of weeks ago. Indonesia has banned exports of palm oil. China's banned the export of some agricultural chemicals. 

Adam: [00:24:06] I thought we were trying to ban palm oil. Full stop. 

Thomas: [00:24:09] Yes, some people are. Yeah. 

Adam: [00:24:11] Oh, okay. Right. Yeah, yeah, right. Other people like it. 

Thomas: [00:24:15] There's a story where I think it's palm oil plantations are replacing natural forests in Indonesia and that's destroying orang-utan habitat. It's my brief understanding of the issue. 

Adam: [00:24:28] Let's not get let's not get lost in the jungle there. Let's pull it back up. 

Thomas: [00:24:31] Yeah, but you say I think you're seeing this this commodity nationalism extend to basic foodstuffs. Yeah. And so that means that for countries like Singapore and all countries, really, that are reliant on trade, that creates some big disruptions. 

Adam: [00:24:46] Yeah, I saw the guy. There's a guy who runs a market stall in Singapore and it's named okay, chicken rice, which for a very modest name is gone with. But he said it's going to severely impact sales, mainly because people won't tolerate frozen chicken. Hmm. So because Malaysia export live chickens or very fresh chickens, I'm not sure which. But yeah. No, there's no, no, no appetite for frozen chicken at the, you know, in Singapore. Hmm. Unless you go to KFC because people are much more tolerant of frozen chicken if it's covered in 11 secret herbs and spices. Although I did, I did some research. Thomas, you have a ten piece bucket in Singapore is $30, and you can get a 21 piece bucket here for $35. So Singapore chicken prices already high, it would seem. 

Thomas: [00:25:38] Arbitrage opportunity, you think?

Speaker 1: [00:25:44] Just fly another flight from Adelaide to Singapore for suitcases full KFC buckets. 

Adam: [00:25:54] True story though. I was trying to I was trying to organise a healthy dinner for the kids the other night, but KFC is having a lettuce shortage, so I had to get Maccas instead. Oh, let us shortage. I didn't know that was the thing. But there's on their website, there's like, sorry, you're not going to have a chicken, a lettuce burger tonight, kids. Yeah. 

Thomas: [00:26:12] Yeah, well, that's a yes or not. Channel Nine's running a news article saying Iceberg Lettuces are up to $12 in Red Bluff in Queensland. Yeah, per. 

Adam: [00:26:21] Legend, that's half a KFC bucket. 

Thomas: [00:26:26] The interesting thing is that like a lot of it, keys of energy. So energy is the big shock that happened with the war in Ukraine and then that impacted oil prices, which is then. And gas prices, obviously. But because energy is like the cornerstone of all economic activity, it's feeding right through the system. And because it's also a lot of ties into fertilisers as well. So like the chicken shortages itself is caused by a lack of chicken feed. 

Adam: [00:26:50] Oh, that's a that's terrible news. Yeah. We're going to have to come up with a new phrase for things that are expensive, because we used to say, well, it's not chicken feed. All right. All right. And that does it for this week. Why don't we leave it there? Thank you so much for listening out there. Don't forget to spread the word. Tell a friend about comedian versus economist. If you think that, though, enjoy the show too. And don't forget to check out all the other great podcasts from Equity Mates Media Get Started Investing feed Equity Mates Investing Podcast. You're in good company, talk money to me crypto curious and of course the dive. Hey don't forget to fin fest is happening October 15th. If you want to get early bird access tickets for just $37 then you need to be quick head over to Equity Mates dot com forward slash fin fest before. For this Thursday, the 9th of June. And get on the registration list for early bird tickets. Fin Fest is powered by steak. That's it from us for another week. Thanks for tuning in. We'll talk to you again next week. Bye for now.