Heavily shorted lithium stocks are experiencing a squeeze following Chinese battery giant CATL's decision to curtail production at a major mine on Tuesday. However, analysts are saying don't get your hopes up as more supply needs to exit the market to justify higher prices.
UBS reports that the CATL mine accounted for approximately 5% of global primary lithium supply and was forecast to become the world's fifth-largest mine by 2025. Despite its closure, the lithium market is still expected to remain in surplus by 2025.
"Today's news was positive but we will need to see more supply come out to solve our 2025 surplus," UBS analysts warned. "We are still wary of additional Africa supply growth."
From a pricing perspective, the analysts anticipate lithium carbonate prices to range between US$10,000 to US$11,000 per tonne, based on global cash costs and CATL's cost base (approximately US$10,968 per tonne). But if prices rise too quickly, CATL may resume its lithium operation.
They also believe spodumene prices could bounce up to US$1,000 a tonne in the near term, up from current spot of US$730 a tonne.
Citi shared a similar view that "more supply cuts are needed to re-balance the market."
While the market is far from a deficit, Citi noted that "investor interest in lithium names has increased in September with news of supply cuts such as Arcadium's Mt Cattlin, Wodgina Train 3, and the deferral of new projects."
Despite these reserved analyst views, a bellwether stock Pilbara Minerals (ASX: PLS) is up around 20% in the last two sessions.
This marks its best two-day streak since January 2023, when its December quarter report revealed a 62% quarter-on-quarter increase in cash to $2.2 billion and plans for an inaugural dividend payment.
Ticker | Company | 1-Day | 2-Day | 1-Year |
---|---|---|---|---|
Mineral Resources | 8.0% | 25.3% | -46.6% | |
Winsome Resources | 11.3% | 22.7% | -65.4% | |
Pilbara Minerals | 6.4% | 20.3% | -36.8% | |
Sayona Mining | 1.9% | 19.6% | -75.0% | |
Liontown Resources | 2.5% | 16.0% | -76.5% | |
Arcadium Lithium | 3.0% | 14.8% | NA | |
Patriot Battery Metals | 5.3% | 14.3% | -70.4% | |
Delta Lithium | 5.3% | 14.3% | -74.2% | |
Piedmont Lithium | 7.1% | 12.5% | -84.0% | |
IGO | 5.4% | 10.5% | -59.4% | |
Core Lithium | -3.0% | 10.2% | -75.8% |
Pilbara Minerals, Liontown and Sayona Mining are all in the top ten most shorted stocks on the ASX. Short interest in MinRes has more than doubled this year to a record 8.6%.
Rank | Ticker | Company | Short % |
---|---|---|---|
1 | Pilbara Minerals | 20.21% | |
4 | Liontown Resources | 11.00% | |
10 | Sayona Mining | 9.89% | |
12 | Mineral Resources | 8.61% | |
25 | Core Lithium | 6.00% | |
39 | Vulcan Energy Resources | 5.09% |
The 20% two-day bounce for Pilbara Minerals and MinRes may be exacerbated by traders covering short positions. If lithium prices continue to rally, even temporarily, the upward pressure on share prices could intensify.
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