Lithium

Lithium stocks are soaring - but you may not want to get your hopes up

Thu 12 Sep 24, 4:35pm (AEDT)
Construction Site On Sunny Evening Industrial Excavator Loading Rocks Into A Truck. The Process Of Building New Apartment Complex. Workers Operating Heavy Machinery To Complete A Real Estate Project Miningasx
Source: Shutterstock

Stocks in article

cxo
MktCap:
-
dli
MktCap:
-
igo
MktCap:
-
ltm
MktCap:
-
ltr
MktCap:
-
min
MktCap:
-
pll
MktCap:
-
pls
MktCap:
-
pmt
MktCap:
-
sya
MktCap:
-
wr1
MktCap:
-

Commodities in article

Share article

Key Points

  • Lithium stocks are squeezing towards the upside after China's CATL halted production at a major operation
  • Analysts from UBS and Citi expect lithium prices to remain under pressure as more supply cuts are needed to rebalance the market
  • A bellwether lithium name like Pilbara Minerals is up more than 20% in the last two sessions, marking its best two-day streak since January 2023

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."

The best two-day streak since January 2023

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.

Two-day performance summary

Ticker

Company

1-Day

2-Day

1-Year

MIN

Mineral Resources

8.0%

25.3%

-46.6%

WR1

Winsome Resources

11.3%

22.7%

-65.4%

PLS

Pilbara Minerals

6.4%

20.3%

-36.8%

SYA

Sayona Mining

1.9%

19.6%

-75.0%

LTR

Liontown Resources

2.5%

16.0%

-76.5%

LTM

Arcadium Lithium

3.0%

14.8%

NA

PMT

Patriot Battery Metals

5.3%

14.3%

-70.4%

DLI

Delta Lithium

5.3%

14.3%

-74.2%

PLL

Piedmont Lithium

7.1%

12.5%

-84.0%

IGO

IGO

5.4%

10.5%

-59.4%

CXO

Core Lithium

-3.0%

10.2%

-75.8%

Data as at 3:30 pm AEST, Thursday 12 September

Watch out shorters

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

PLS

Pilbara Minerals

20.21%

4

LTR

Liontown Resources

11.00%

10

SYA

Sayona Mining

9.89%

12

MIN

Mineral Resources

8.61%

25

CXO

Core Lithium

6.00%

39

VUL

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.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

Get the latest news and insights direct to your inbox

Subscribe free