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The cure for high prices is high prices

Summary:
What if demand for something rises? Supply then has to either increase or prices do. Those high prices then call into being that grunt work of trying to increase supply. Things that didn’t make sense before now do as methods of said supply, new methods of creating supply are chewed over and so on. The cure for high prices is high prices:As demand for electric vehicles grows amid a push for a greener economy, carmakers globally are grappling with rising prices of everything from semiconductor chips to copper and aluminium.Now the expense of lithium, a metal found in every commercial electric battery, is starting to bite as a lack of mining capacity strains supplies. Experts say it is likely to get worse and more investment in production is needed to meet electric vehicle supply chain

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What if demand for something rises? Supply then has to either increase or prices do. Those high prices then call into being that grunt work of trying to increase supply. Things that didn’t make sense before now do as methods of said supply, new methods of creating supply are chewed over and so on. The cure for high prices is high prices:

As demand for electric vehicles grows amid a push for a greener economy, carmakers globally are grappling with rising prices of everything from semiconductor chips to copper and aluminium.

Now the expense of lithium, a metal found in every commercial electric battery, is starting to bite as a lack of mining capacity strains supplies. Experts say it is likely to get worse and more investment in production is needed to meet electric vehicle supply chain needs.

Just off the top of our heads, spodumene mines in Australia are opening up again (they closed when the by-product tantalum dropped in price), new spodumene mines are under development all over the place, West Africa and so on and on. The geothermal waters under Cornwall are being filtered, as are those around the Salton Sea, the Kruzny Hory and on and on. The “lithium triangle” in South America and the brines there are being scoured for more opportunities. When Bolivia stops insisting the cars are made up on the altiplano, rather than just allowing the lithium extraction, then perhaps that supply will come online. When Chile issues more extraction licences - the current ones are Pinochet era and it’s the nuclear ministry which may, but does not, issue more* - then that huge supply will be more available. On the subject of brines one group of possibly bright chaps insists they can filter the Red Sea (a little above normal oceanic Li content) and there are beady eyes peering at desalination plants all over the place.

This is before we go and seek out examples of anything, this is just culled from a casual reading of the newspapers recently.

Not that we’re here to make commodity price predictions but there’s a reasonable chance that more than enough of these will come online and that the lithium price will slump at some point off in the middle distance. There is, after all, no shortage of actual lithium around in that lithosphere, it’s only economic concentrations that are scarce.

At which point two observations. That demand for more investment - that’s entirely missing the point. Which is that the investment is not just happening it has already happened. Armies of geologists have been scouring the world for a decade and more already.

Why? The second observation, because the cure for high prices is high prices. Further, given that markets are forward looking the cure for high prices is predictions of high prices. The predictions themselves moving the efforts back through time as people now act to capture those potential profits in the future.

By the time the bureaucracy gets to hear about it everything has already happened. Which might not be as silly as the Chilean licence granting system but it is a fundamental objection to that idea of state planning of such things.

*An isotope of lithium can be used to make hydrogen bombs but this is really just an example of the stupidity of state planning

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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