Earlier this year Wesfarmers trimmed its expected output from its Mount Holland lithium mine in WA to 140,000 to 150,000 tonnes this financial year – down from previous guidance of 150,000 to 170,000 tonnes.
Prices for spodumene, the type of lithium that is mined in Australia, have surged 9 per cent to $US745 a tonne since the Zangge suspension was announced. The rally helping to cement the bull market for the lithium sector, with prices up 30 per cent from the June low of $US575 a tonne.
The soaring prices have unleashed a huge rebound in lithium stocks, wrong-footing hedge funds betting on further declines. Pilbara Minerals, which is the third-most shorted stock on the ASX, has surged 60 per cent from its June low. Liontown Resources and MinRes are both up more than 55 per cent, and IGO has rallied 40 per cent.
The next likely catalyst for investors will be when Pilbara Minerals releases its June quarter results next Wednesday with analysts on the lookout for any clues about the outlook for lithium.
“With spodumene pricing back at around $US760 a tonne … we think the equities are no longer facing earnings momentum headwinds for FY26,” Citi’s McCutcheon said.
Lithium markets have been battered over the past few years as signs of oversupply collided with disappointing demand for electric vehicles. But traders are hopeful the Chinese government’s crackdown at Zangge’s mine signals a broader effort to tackle overcapacity in the market.
Morgan Stanley noted eight mines in Jiangxi, which account for 150,000 tonnes of carbonate output per year, had been asked to submit “reserve verification reports” by September 30 due to flaws in their mining licence approvals. Another major producer in Jiangxi also suspended spot market sales for three months, the broker said, without naming the company.
“Our channel checks indicate a slowdown in lithium production/sales in the lepidolite-rich Jiangxi region,” Macquarie said. “We see risks in ‘plant maintenance’ in the near term.”
While most brokers have urged clients to steer clear of the lithium sector, Morgan Stanley turned constructive on ASX miners in December. The broker has an “overweight” rating on both Pilbara Minerals and MinRes.
“Equities screened cheap, and demand for EVs has shown strong momentum, unlike 2024, when hybrids dominated,” said Morgan Stanley equity analyst Rahul Anand.
China’s EV sales are up 47 per cent this year compared to the same period in 2024.
Morningstar said it expected a recovery in lithium markets next year as companies stop investing in projects and curtail supply – a dynamic which is not yet reflected in valuations.
“Lithium miners… are generally cheap due to low lithium prices, but we think rising demand and slower supply growth will see prices rise in the longer term,” said Morningstar’s mining equity analyst Jon Mills.
The firm believes New York-listed Lithium Argentina and Albemarle are the cheapest global lithium stocks under its coverage, and said MinRes was the most undervalued ASX producer.
“Earnings will rise as [MinRes’] lower-cost, longlife Onslow iron ore mine ramps and as lithium prices recover,” Mills said. “This, in turn, likely drives deleveraging of the firm.”
