Lithium stocks are on the comeback as spot prices finally bounce after a 5-month and 70% selloff. But the question on everyone’s mind is – Is this just your A-typical dead cat bounce or the return of the lithium hype train?
Morgan Stanley says the turning point is in for lithium markets – at least for now.
“Although China’s EV sales and battery production are back in growth mode after a lacklustre start of the year, cathode and battery cell producers are still not fully back buying in the spot market, but sentiment is clearly improving and their lithium inventories appear to have eroded,” the analysts said in a note last Friday.
“Unlike for nickel and cobalt, we still model a full-year lithium market deficit for 2023, and we expect the recently oversupplied lithium market to become tighter again for the remainder of 2023.”
“We see some upside risk to our 2H23 base case forecast for an average China lithium carbonate price of US$25/kg.”
Australian spodumene production fell short of the broker’s expectations in the first quarter of 2023, with cumulative production reported by Australian producers coming in at approximately 774,000 tonnes, which is flat against the previous quarter.
Forward looking guidance implies that Australian production in the second quarter might rise 5% against the previous quarter.
Overseas, the analysts said Chile’s export growth in 1Q23 “wasn’t stellar either”, up 5% quarter-on-quarter and 6% year-on-year.
There were also five new operations/expansions in the Americas, set for a cumulative capacity of 145,000 tonnes of lithium carbonate equivalent, but “these will take time to ramp up.”
“Therefore we think the market can stay relatively right for the remainder of 2023, but the overall shortfall will be much less than last year.”
Separately, Macquarie said that major lithium producers – Mineral Resources (ASX: MIN), Allkem (ASX: AKE), Pilbara Minerals and IGO – presenting at its Australia Conference noted “constructive market outlooks” and “solid market fundamentals which provide price support to the short to medium term.”
Some key highlights from the Macquarie conference include:
Supply security: “The recent news on potential lithium resource nationalisation has highlighted the value premium of projects and operations in tier-one jurisdictions.”
Moving downstream: Lithium miners are progressing growth opportunities both organically and via bolt-on options. Many are moving downstream to capture more margin and value, and forming JVs with partners that have chemical processing capabilities.
Demand outlook: “EV demand is a near-term focus. We note our auto analyst has forecast total global light vehicles of 82m in CY23 with 11.7% and 4.9% penetration from BEV and PHEV, respectively.”
“We see value in both Allkem and Liontown, with Allkem offering unique exposure to both lithium brine in South America and spodumene production in Australia,” the analysts said.
“We believe Kathleen Valley construction will de-risk the project and provide valuation support for Liontown.”
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