Broker Watch

UBS’ top five ASX-listed lithium stocks

Tue 18 Apr 23, 2:22pm (AEST)
Lithium mining
Source: Shutterstock

Key Points

  • UBS downgrades lithium price forecasts by up to 30% in short term
  • Long term thesis still intact, argues analysts

Lithium names are the darling that keep on giving, especially when a broker upgrades their long-term forecasts for the mineral.

UBS is out with a new note that refreshes its base case forecasts for the ASX lithium miners’ earnings and the commodity it deals in. The new projection suggests there could be as much as a 30% cut to the raw price through the end of 2024. And yet, they found room to upgrade the ASX’s largest miner to a BUY. 

In this article, I’ll summarise the note that’s got lithium bulls’ mouths watering.

Lithium forecast changes

As is with anything lithium-related, China is the primary culprit as to why price forecasts have been downgraded. Headline spodumene and some Chinese spot chemical prices have collapsed from their peaks in November 2022 on weak demand and a large existing supply.

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If lithium demand were to reduce by even 10%, the UBS team thinks prices could fall in the short-term by up to 30% across most of the major markets. 

But, the long term looks much better

In spite of the short-term downturn, UBS has high hopes for lithium and associated producers in the long run because of the wider supply glut.

“Our review of the currently slated supply response suggests higher prices are required and we have increased our long-term prices across the board by ~20%.”

UBS argues this bull case is actually conservative given the following themes:

  1. A lack of new sources of supply

  2. Chinese lepidolite production is slowing (lepidolite is another mineral where lithium can be found, but it’s overlooked in favour of the more conventional spodumene)

  3. Industry participant feedback

  4. Consensus forecasts

The one upgrade

Despite the short-term price downgrades, UBS found room to upgrade Pilbara Minerals (ASX: PLS) to a BUY from neutral. In addition, UBS’ bull case sees the Pilbara price soaring by another 42% to $5.40/share. Analysts argued that the company has the most to gain if its long-term bull case is proven right.

“While most levered to falling lithium prices, with the stock down 33% from all-time highs we see an emerging opportunity to re-enter the name,” analysts wrote.

But even Pilbara Minerals is not UBS’ favourite pick. IGO (ASX: IGO) wins that crown with a renewed price target of $19.10/share (or 41% upside from its current price). In third and fourth place respectively are Mineral Resources (ASX: MIN) and Allkem (ASX: AKE). All four have BUY ratings while Liontown Resources (ASX: LTR) has a NEUTRAL rating.

Written By

Hans Lee

Content Editor

Hans is a Content Editor at Livewire Markets and Market Index. He created Signal or Noise and helps write the LW-MI Morning Wrap on Tuesdays and Thursdays.

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