Credit Suisse joins in on souring lithium outlook, surpluses to threaten from 2025

Credit Suisse is another investment bank hopping on board the lithium peak bandwagon, saying it might be time to take profits amid high prices and macro demand risks. 

“We now see a balanced [lithium] market in 2023/24, and surpluses threaten from 2025, a major change from previous deficit forecasts,” Credit Suisse analysts including Matthew Hope and Saul Kavonic said in a note on Wednesday. 

“We previously considered the deficit was intractable, but the world has changed with inflation, war and lockdowns souring the demand outlook, whilst the pace of supply response to spiking prices has been more rapid than anticipated.”

The macro environment has also taken a toll on demand, notably lockdowns in China reducing EV sales, weak consumer confidence amid rising inflation and interest rate hikes, the analysts said. 

Price forecast drivers

Lithium prices to be higher in 2022

Interestingly, Credit Suisse said that spot prices and Allkem (ASX: AKE) realised prices have outpaced previous forecasts.

Lithium price forecasts for 2022 was upgraded, with the view that prices could push higher and peak in the next few months. "China demand may bounce in December half 2022 if the lockdowns end, allowing EV production and sales to climb, but we don’t believe the chemicals market will be as tight as March quarter 2022."

"China’s EV manufacturers have been slowed or halted for lockdowns from March, but producers have not, so raw materials should have built a supply buffer," the bank said.

Rapid supply side response

High lithium prices has "incentivised a frenzy of activity in the mine supply-side", including near-construction projects in Mali and Zimbabwe, and supply expansion from existing projects including SQM and Mineral Resources' (ASX: MIN).

Other notable projects advancing towards "possible construction" and ramp up included:

• Allkem's Authier in Canada

• Leo Lithium's Goulamina in Mali

• Ganfeng's Mariana in Argentina

Deficit has evaporated

Previous estimates about a supply and demand deficit has "evaporated", with 2022 to 2024 forecast to be a balanced market. Though, the balance from 2024 onwards depends on the progress of exploration and pre-production projects.

"If construction and probable projects only are completed, with no others, the market could remain in balance until 2026."

"But if all the projects, including those we class as “possible” advance, then surpluses may get out of hand in 2025-26," the analysts said.

Lower demand estimates

Credit Suisse analysts reduced demand estimates in China to account for the lockdowns and higher prices of raw materials.

Its estimates for other regions have not changed, but remain weary of weakening economic indicators, such as a -14.4% decline in new EU vehicle registrations for the first four months of 2022.