Macquarie Research has been forced into an embarrassing backflip over its outlook for the lithium market.
Analysts from the investment bank this week upgraded their forecasts for the lithium and cobalt price and lifted their outlook for several local lithium players after last year predicting an oversupply of the commodity.
Yesterday, Macquarie upgraded its lithium price forecasts 19 per cent in 2020-21, 29 per cent in 2022 and 17 per cent over the long term. It also upgraded the stocks of aspiring producer Pilbara Minerals and producer Galaxy Resources to “outperform” and Altura Mining, another aspiring WA lithium miner, to “neutral”.
“We believe increased Chinese electric vehicle production driven by the recently announced NEV credit system will continue to drive medium-term lithium and cobalt demand,” the Macquarie commodities team said in a research note to its clients.
The NEV (new energy vehicles) credit scheme encourages Chinese auto manufacturers to improve the fuel efficiency of internal combustion cars and promote the production of electric vehicles.
“We remain cautious that policy will immediately translate to Chinese consumer uptake, but in conjunction with the slower ramp of new entrants, we see a supply deficit extending to the early 2020s,” Macquarie said.
The analysts said demand drivers for lithium and cobalt, such as Chinese Government policy and commitments to build more electric vehicles from the big car manufacturers, were firming. “Meanwhile, new supply from both incumbents and new hopefuls is taking longer than expected to eventuate and the time scale of a deficit looks likely to extend,” they said.
“In our view, the Australian spodumene sector is the most likely to fill this deficit.”
Macquarie said lithium brine production from Chile continued to trend sideways and the ramp-up of supply from the Mt Marion project, a joint venture between Mineral Resources, Neometals and China’s Jiangxi Ganfeng, and Galaxy’s Mt Cattlin project had been slower than anticipated, leaving the door open for additional development projects such as Pilbara Minerals’ Pilgangoora project.
Macquarie’s research comes on the back of two conflicting reports on lithium from other analysts last week.
Deutsche Bank said the price was heading down because of a strong supply of direct shipping ore from Mineral Resources’ Wodgina project in the Pilbara. Canaccord said the lithium DSO potential was overstated.
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