Pilbara Minerals and IGO are our preferred producers: Macquarie

Macquarie said it expects lithium prices to stay higher for longer as accelerating supply efforts won't be enough to offset the demand boom.

"We do not see material volume from new spodumene producers until 2023. We lift our peak price assumption by 2% to US$5,000/t (realised quarterly average) and upgrade annual prices by 55% for 2023," the analysts said.

The stronger lithium price outlook drove material upgrades to earnings forecasts for large cap producers including:

• Mineral Resources (ASX: MIN)

• IGO (ASX: IGO)

• Pilbara Minerals (ASX: PLS)

• Allkem (ASX: AKE)

• Liontown Resources (ASX: LTR)

"Pilbara Minerals and IGO are our preferred AU producers, while Mineral Resources remains our preferred stocks in the broader resources sector," said Macquarie.

Source: Macquarie Research | Table: Market Index (Prices as at close on 19 August 2022)

Upgraded lithium price outlook

"We anticipate Internal Combustion Engines (ICEs) to continue losing market share to electric vehicles. We estimate EV penetration rates to reach 26.6% globally in CY22, led by the European and Chinese markets," notes Macquarie.

Short and medium-term lithium price forecasts were revised sharply higher, including:

Spodumene (US$/t, yoy % increase/decrease):

• 2022e: $4,110

• 2023e: $4,525 (+10.1%)

• 2024e: $4,200 (-7.2%)

• 2025e: $3,525 (-16%)

• Long-term: $1,200

The price estimates for 2023-25e were up 55%, 107% and 114% compared to previous forecasts.

Key picks unchanged

Pilbara Minerals and IGO were called out as "key picks which offer strong production upside".

"Pilbara Minerals boasts the largest earnings leverage to our spodumene price upgrades. The improved outlook drives a 29% lift in our FY23e earnings, a 128% upgrade in FY24e and 174% increase in FY25e," Macquarie said.

In FY23, Macquarie forecasts Pilbara Minerals to post a net profit of $2.1bn compared to $561.8m in FY22 and an outsized cash position of $3.46bn.

Source: Macquarie Research