A glance through the latest expert views and predictions about commodities: brokers have divergent near-term views though are generally positive on the longer-term outlook for lithium.
-Brokers vary on the near-term outlook for lithium
-Citi's higher-for-longer view tied to electric vehicle demand
-Recent lithium pricing leads to share price volatility
-Preferred stocks in the sector
Volatility is to be expected for lithium stocks in a commodity market forecast to grow eight times over the decade, according to
And volatility is what investors have experienced for most ASX-listed lithium names since mid-November.
Macquarie attributes recent share price falls to market sentiment and demand seasonality and remains constructive on the near-term outlook.
Morgan Stanley has an opposing view for the near term.
It's felt last week's auction clearance price on
However, the analysts acknowledge further data points will be required to confirm a trend.
This broker's weaker near-term view is based on caution around battery over-production in
Citi and
The most detailed recent report was compiled by JP Morgan on global supply of lithium, which refers to global plans for around 100 individual projects. A smaller market deficit in 2023 is now forecast and a fresh wave of supply is expected to hit from 2027 onwards.
Despite this, the broker forecasts a market deficit until 2026 and sees strong valuation support, high production growth, and low multiples for its preferred lithium plays in
Higher for longer?
Citi's higher-for-longer outlook for lithium is based upon the commodity's high exposure to the rollout of EVs globally, but most notably in
The broker makes material earnings upgrades to stocks within its Lithium sector coverage to align with the consensus view. While lithium prices have peaked, near-term downside is thought to be limited, particularly for contract pricing.
The scale at which lithium supply must grow to meet demand is unlike other commodities, points out Citi. As a result, prices should remain disconnected from the cost curve over the medium term.
The analysts find it hard to make a bearish case on a supply response. Indeed, supply may be threatened by technical challenges, cost inflation and long lead times for permits to be granted.
In the near term, the broker feels battery supply chain destocking may weigh on sentiment though
It should be noted, the analysts at Citi have not factored in a larger potential recession, which could cause weaker EV and non-EV segment sales.
Forecasts and definitions
Citi raises its long-term (real) spodumene price forecast to
JP Morgan forecasts
Carbonate prices should maintain a premium over hydroxide in 2023, according to Citi, due to demand for lithium iron phosphate cathodes.
For the uninitiated, lithium carbonate is a lithium compound which associates with carbonates to become a salt and is mainly produced by extracting it from underground brine pools.
Lithium hydroxide is a lithium-based compound, which compared to lithium carbonate, decomposes at a lower temperature, allowing the process of producing battery cathodes to be more sustainable and results in a long-lasting final product.
Spodumene is considered the most important lithium ore mineral due to its high lithium content.
Recent lithium pricing leads to share price volatility
As an indication that spodumene pricing may be coming under pressure,
The pricing on this platform is regarded by the market as a leading indicator for other spodumene prices, explains Morgan Stanley. Hence, the lower pricing garnered extensive market attention and led to share price falls in the sector.
Macquarie believes the decline in auction price was anticipated, given spot lithium carbonate prices were down -5-8% since the previous BMX Auction was held.
While the headline number disappointed the market,
Despite this indication, low volumes of
In the last four weeks, spot lithium carbonate prices in
While Platts' spodumene price indicator has softened to
Broker stock preferences
The largest beneficiary of Citi's upgraded long-term spodumene price forecast is IGO ((IGO)), as its Greenbushes mine is the highest-grade and longest-life spodumene mine globally. Nickel price upgrades also contribute to the broker's new rating of Buy, up from Neutral, while the target rises to
JP Morgan likes the tier-1 exposure and nickel diversification of IGO, its preferred pick in the sector, and retains an Overweight rating, while Macquarie and
The analysts at Citi remain Buy-rated on Mineral Resources ((MIN)) and
The broker's target for
This broker retains its Neutral rating for
As
Macquarie also has an Outperform rating for both
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