Game Over For Lithium?

Commodities | Jun 02 2022

Brokers have swiftly come to the conclusion lithium prices will soon peak and pull back substantially, though the outlook is a little more complex.

-Calls for lithium spot prices to peak
-Global EV demand growth remains critical
-Chinese lockdowns cloud the outlook
-Inflation may lead to demand destruction

By Greg Peel

“Chinese electric vehicle maker BYD Co Ltd is in talks to buy six lithium mines in Africa with total resources of lithium oxide at 2.5% grade estimated at more than 25 million tonnes, Shanghai government-backed media The Paper reported on Tuesday, citing sources”. Reuters reported the news but “has not verified this story and does not vouch for its accuracy”.

That was just one piece of news that rattled Australia’s listed lithium miners yesterday, leading to share price falls across the sector of -8-22%.

Another was Bloomberg reporting that Argentine customs will set a reference price of US$53,000/t for lithium carbonate exports, with prices currently around US$57,000/t.

Citi analysts responded to this news by suggesting this is essentially a mechanism for customs to request the integrity of contract pricing where there is a large variance. Given this is not a floor or ceiling price, nor will it change the prevailing royalty regimes, Citi does not expect any fiscal impacts for its lithium miner coverage.

As Shaw and Partners notes, there is no “benchmark” price for lithium. Prices are published by several providers of spodumene and a number of lithium chemicals. These prices are provided in various currencies and are based on product quality and despatch or delivery location.

Lithium markets are opaque, but Shaw expects there will be a move towards a standard convention within two to three years.

That said, lithium spot prices have declined from a high of around US$69,000/t in April to US$57,000/t currently, largely due to lockdowns in China leading to a drop in EV production (including at Tesla’s gigafactory in Shanghai). But as Shanghai begins to reopen this month, presumably lithium prices will rebound?

Not necessarily. Exacerbating yesterday’s plunge for lithium miner stocks was specifically a report out from Goldman Sachs, but Goldman is not the only broker to warn of trouble ahead.

Some History

It’s not hard to understand why lithium prices have surged during 2022. Macquarie has provided some hard data this week, revealing global EV light vehicle sales rose 65% year on year over January-April, while total light vehicle sales fell -11%. The fall in total sales cannot be blamed on the global chip shortage, as this is affecting both EV and internal combustion engine (ICE) vehicles.

Citi notes EV sales are expected to be underpinned over the coming years by rising economies of both scope (increasing range between charging) and scale (falling manufacturing costs), as well as global government support. EVs and related infrastructure will be one of the first sectors to be stimulated in a downturn, Citi suggests.


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