Material Matters: Lithium, Oil & Thermal Coal

Commodities | Jan 23 2018

A glance through the latest expert views and predictions about commodities. Lithium; oil; aluminium & alumina; solar; thermal coal.

-Prices for battery raw materials expected to fade from current high levels
-Crude prices vulnerable to correction but timing is difficult to predict
-Spot alumina price appears unsustainable
-Thermal coal prices considered unlikely to stay above US$80/t


By Eva Brocklehurst


China's electric vehicle sales rose considerably in 2017, correlating with strength in import demand for battery raw materials. UBS finds the latest data on Chinese new energy vehicles consistent with recent upgrades and a bullish stance towards battery commodities and related equities. The broker also expects full battery electric vehicles to continue to hold a dominant position versus plug-in hybrids.

The broker remains bullish in the long-term for lithium, graphite, nickel & cobalt yet expects prices for all but nickel to ease from current high levels. UBS maintains Buy ratings for Syrah Resources ((SYR)) and Neutral for Galaxy Resources ((GXY)).

Sociedad Quimica Y Minera de Chile, or SQM, the lowest cost producer of lithium globally, has obtained the right to increase its annual production quota by 4-6 times. Morgan Stanley expects the company to aggressively recover market share from 2020 and envisages downside risk to the lithium price as a result.

The company has been able to expand its quota in Chile to 2.2mt until 2030. Morgan Stanley's view has been for lithium prices to fall gradually, bottoming at US$8000/t by 2022. The broker concedes this could now happen faster as SQM recovers the capacity to determine global prices.


As net long positions in WTI crude are at an all-time high prices are vulnerable to a correction and ANZ analysts suggest this could be induced by a sudden increase in drilling activity in the US shale industry. Timing for such a move is difficult to predict so the strength could last longer than fundamentals would suggest.

The analysts also note that unplanned disruptions are near historically low levels, despite the rising geopolitical risks. Hence, any rise in disruptions could have a significant impact on oil prices.

Citi has increased Brent oil forecasts for the first half of 2018 by US$3/bbl, but does not change its view regarding weakness occurring from the second half onwards. The broker acknowledges a bearish catalyst is needed for liquidation to begin and there is potential for this later in the first half, depending on the weather, supply outages and refinery maintenance.

The broker considers the oil sector expensive and the price is the key risk. The broker's preference in the sector remains with Sino Gas & Energy ((SEH)) and Caltex ((CTX)).

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