Lithium prices tipped to surge by 40pc this year

CITIGROUP has declared the collapse in lithium prices is likely to be over, and prices should rebound by as much as 40 per cent by the end of the year as downstream producers start to restock and policy support in China boosts sales of electric vehicles.

Chinese lithium carbonate prices plunged around 70 per cent in just five months to a low of US$22,000 a tonne, but have since recovered to US$28,000 a tonne in the last few weeks. Citi attributed the rebound to improved market sentiment, demand from physical traders, recovering EV sales and lower inventories in the supply chain.

And the broker believes lithium’s recent rally has further to run, predicting Chinese carbonate prices will hit between US$35,000 and US$40,000 a tonne by the end of this year, representing 25 per cent to 40 per cent upside.

“We believe the battery supply chain destocking cycle in China is in its final phase and active restocking in the second half of 2023 is likely to support prices at higher levels,” analyst Shreyas Madabushi said.

The rebound in prices has also helped fuel a rally in lithium stocks. So far this month, Pilbara Minerals is up 12.6 per cent, Core Lithium has gained 17.5 per cent, Lake Resources has soared 56 per cent and Allkem has gained 22 per cent.

The broader sector has also been boosted by Allkem’s US$15.7 billion merger with US group Livent, and takeover interest in Liontown Resources.

Citi’s bullish call echoes that of Morgan Stanley, which last week said that lithium markets had hit a “turning point” as sentiment improved from falling inventories and softer-than-expected supply growth.

While Citi is forecasting a nominal surplus in the physical lithium market this year, it warned that a deficit remained possible as labour shortages, permitting issues and mining technicalities constrained supply growth.

Australian suppliers have also flagged increasing costs from inflation and labour shortages. This contributed to Australian spodumene production in the first quarter being broadly flat on the fourth quarter of last year.

Risk of deficit

Exports from Chile have also underwhelmed, with exports in the first four months of this year also flat. Artisanal supply from Namibia and Zimbabwe into China, which surged last year due to higher lithium prices, are down 82 per cent from the peak seen in November due to regulations and lower prices.

“We forecast a nominal surplus for lithium this year. However, new projects remain susceptible to project commissioning delays, cost blowouts and labour shortages,” Mr Madabushi said. “Delays to volumes could feasibly flip the market back into deficit, supporting prices.”

On the demand side, Citi said sales of electric vehicles in China were improving after a lacklustre start to the year, with sales in April showing strong growth momentum.

There were 607,000 EVs sold in China last month, which was 116 per cent higher than a year earlier, but slightly down on March this year due to seasonal impacts. Sales for the first four months of this year have reached 2.1 million units, up 43 per cent from a year earlier.

Citi said while cathode, cell and battery producers were still sitting on the sidelines with “hand-to-mouth buying”, there were signs of improving demand with inventory levels of lithium chemicals at some of the players now at lower levels.

“As order books for battery producers improve, downstream demand for lithium chemicals would increase,” Mr Madabushi added.