Bank of America forecasts lithium oversupply in 2023; deficit set to resume in 2027
Bank of America analysts forecast another oversupply into super cycle narr
Mentioned
KEY POINTS
- The market will re-enter a surplus between 2023-2026 as supply outpaces demand
- An outsized deficit will resume from 2027 as new supply plateaus
- The lithium supply deficit is projected to increase 37% year-on-year in 2022
Bank of America (BoA) said lithium demand expanded twice as fast as supply in 2021.
Global lithium carbonate equivalent production rose 20.7% to 536,978 tonnes last year. While global consumption jumped 64.8% to 556,992 tonnes, resulting in a -20,013 tonnes deficit.
The gap between demand and supply growth is forecast to close in 2022, with both expanding by around 27%. Though, the market is expected to remain in a deficit of -27,627 tonnes, up 37% compared to last year.
Lithium demand and supply outlook (Source: Bank of America Global Research)
Interestingly, the lithium market is forecast to make a sudden U-turn into surplus from 2023 to 2026 as supply growth begins to outpace demand.
By 2027, BoA expects the market to re-enter a massive supply deficit of -91,876 tonnes, more than triple the supply deficit expected in 2022.
The deficit is projected to expand to -538,068 tonne by 2030 as supply growth plateaus.
Why oversupply is not likely
Lithium reporting agency, Benchmark Mineral Intelligence was quick to kick back at a previous Goldman Sachs research note titled "Battery Metals Watch: The End of the beginning".
They outlined 5 fundamental reasons as to why the oversupply call is wrong.
Industry cannot reply on Chinese supply
Goldman sees the most "significant" supply coming from China, which has traditionally produced low quality lithium
Capacity does not equal supply
New lithium supply comes at a higher cost base
Contract pricing is important
Lithium chemical capacity may not meet downstream specifications
Taking a look at the timeline
Surplus or not, several ASX-listed lithium players are expected to come online in the next couple of years (and ramp up in subsequent years), notably:
2022: Core Lithium (ASX: CXO)
Mineral Resources' (ASX: MIN) Mt Marion ramp up
2023: Sayona Mining (ASX: SYA)
2024: Lake Resources (ASX: LKE), Liontown Resources (ASX: LTR)
Allkem's (ASX: AKE) James Bay and Sal de Vida projects
2025: Leo Lithium (ASX: LLL)
By tonnage, the most significant projects/companies are:
Mineral Resources' Mt Marion stage two upgrade to 900,000tpa
Liontown's Kathleen Valley project producing 511,000tpa (increasing to 658,000tpa)
Liontown expects to supply around 5% of global spodumene in 2024
What they all seem to agree on
Despite Goldman's near-term bearishness on lithium, the investment bank said that prices could soar again after 2024. Saying that oversupply will "ultimately sow the seeds of the battery materials super cycle over the second half of this decade."
Likewise with BoA, its projected deficit from 2027 is several-fold what it is today.
