Morgan Stanley says lithium prices have bottomed and expects supply to stay tight in 2023

Mon 08 May 23, 12:30pm (AEDT)
A row of lithium brine ponds extend into the distance in a straight line from the photographer; mountains cover the horizon in the distance.
Source: iStock

Key Points

  • Lithium spot prices are bouncing after a 5-month selloff
  • Morgan Stanley observes improving sentiment, a decline in midstream inventories and disappointing supply growth
  • The lithium market is expected to remain in a deficit in 2023 but conditions will not be as tight as previous years, says Morgan Stanley

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?

Lithium looking up

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.”

Supply is off to a slow start

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.

This was primarily due to lower quarter-on-quarter production from IGO (ASX: IGO) and Pilbara Minerals (ASX: PLS) due to operational issues and planned maintenance.

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.”

Highlights from the Macquarie conference

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.”

When it comes to preferences, Macquarie reiterated its preference for producers Mineral Resources and Pilbara Minerals, and explorers Patriot Battery Metals (ASX: PMT) and Global Lithium (ASX: GL1).

“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.”




Target price


Mineral Resources




Pilbara Minerals




IGO Limited








Liontown Resources




Core Lithium




Argosy Minerals




Patriot Battery Metals




Global Lithium



Source: Macquarie Research (May 2023)


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.

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