This article re Lithium

By Barry Fitzgerald

BHP, Rio chiefs offer firm evidence on China comeback story; Catalyst acquires Plutonic

LITHIUM:

BHP is not interested in lithium while Rio is building a presence, with its first meaningful production still years off.

More’s the pity for them because the lithium producers have been going gangbusters on the profit front.

Lithium prices took off last year in a major way, with this profit reporting season giving us the first real feel of the earnings capability of the producers.

Pilbara (PLS) reports for the December half today and Macquarie is expecting a result slightly below consensus of $1.21 billion for the half year, and a rollicking $2.74 billion for the June year. The earnings surge is being repeated at all of the other producers.

It is amazing stuff. But the market in the lithium producers, and by extension, the developers and explorers, remains nervous about the lithium price cratering. It shouldn’t matter as all of them are being priced as if lithium has come off in a big way anyway.

There is no doubt that lithium carbonate prices in China are weakening. But lithium hydroxide and its preferred precursor, 6.2% spodumene concentrates produced here in Australia, remain as strong as you like. And demand for both carbonate and hydroxide in non-China markets remains as strong as you like.

Pilbara and others will provide commentary on all that in coming days. Don’t expect any Chicken Little-typed commentary.

That is assumed because Pilbara recently struck an interesting hydroxide tolling deal covering 15,000t of concentrate which implied a price of $US8,304/t compared with the circa $US6,300/t available on the spot market.

None of that is to suggest that lithium prices won’t come back to earth as supply (eventually) catches up with demand. But is that 3, 5 or 10 years out? Take your pick. Chris Ellison’s Mineral Resources has done just that, laying down almost $1 billion for a share of two lithium processing plants in China.

As it is, UBS in a research note on February 20 addressed some of the market’s concerns on lithium pricing as 2023 unfolds. But weighing everything up, it reiterated its bullish medium to long-term view of the market.

“We remain structurally bullish (on) lithium, thanks to unprecedented secular growth and ongoing supply challenges,” it said.

“China’s EV sales recovery post Chinese New Year/winter/COVID reopening is the number 1 catalyst we are watching.”

Its share price targets for the main players suggests individual stock upside ranging from 5% to 66%.

So the next time there is a sell-off in lithium stocks triggered by a newswire of no repute out of China suggesting the lithium party is over, it could well pay investors to do some channel checks before deciding on a response.