Lithium and nickel share a common use in the batteries of electric vehicles, but they have quite different market dynamics which Dryblower reckons will see nickel strangled for years to come while lithium stages a strong recovery.
There is a little bit of wishful thinking in that opening remark but there is also evidence emerging that the lithium crash is over and the next move will be up.
A flurry of analyst's research released last week is the starting point in understanding the outlook for the metal with a calculation by ANZ Bank the most interesting.According to the bank's July 11 note headed 'Lithium not yet discharged' the surplus of metal weighing on the price is "less than 25,000 tonnes, or 1.4% of total demand" – which, to ‘Blower, sounds like sweet FA.
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Willsons acknowledge the slowdown in EV demand but also pointed out that sales "continue to demonstrate strong structural growth, rising by 26% year-on-year in the first five months of 2024".
Take together the smaller than expected overall surplus of lithium and growth, albeit slower than expected growth in EV sales, seem to be having an effect on the share prices of local lithium miners.
Last week saw a solid revival in most lithium-exposed stocks on the ASX, led by the Gina Rinehart-backed Liontown Resources, which rose by 10% to A$1. Given that the stock was trading at more than $3 at this time last year a price of $1 still means it's down 66% on its peak.But, and this is the important point that every investor says just before going to sleep every night, "the trend is my friend".
Other lithium stocks did not do as well as Liontown last week but one in particular did much better with Galan Lithium rising by 20% from 16c to 20c after a positive update to work at its Hombre Muerto West project in Argentina.Like Liontown, Galan has a long way to go if it is to reclaim the $2.14 high point of 2022 but the share price bump last week was a sign that at least some investors are reading company reports and acting on them.
It's a different story with nickel stocks, not that there are many pure-play nickel stocks left on the ASX. Even a 5% rise by IGO was almost certainly connected to its lithium interests rather than nickel.
The problem with nickel, and the major reason BHP has decided to mothball its WA business, is the flood of metal from Indonesia which is being largely shipped to China – and in that combination lies the key to understanding why Indonesian production will not slow and will probably keep rising.
China, which has funded the Indonesian nickel industry, is not particularly interest in whether the mines and process plants are profitable, it is only interested in a supply of cheap metal for use in its vast manufacturing complex which is spewing out stainless steel and EVs.
In time, the nickel price might recover, but big banks such as Morgan Stanley reckon there's no hope on the horizon until after 2030.Lithium is different and not (yet) subject to Chinese control which is why the price crash of 2023/24 led to logical project closures that are having an effect on the surplus and will start to have an effect on the price, perhaps before the end of the year.
ANZ's view that lithium carbonate will rise by between 33% and 50% by next year (back to a price between US$16,000-$18,000 a tonne) is based on a combination of project closures which are limiting supply and demand for lithium-ion batteries which continues to rise by up 18% a year.
Wilsons is on the same page as ANZ telling clients that while weak near-term sentiment appeared likely to persist for the remainer of the calendar year it is confident that further downside in the lithium price is limited."Strong growth in lithium demand is still likely to result in compounding supply deficits this decade, which underpins our expectation of higher lithium prices over time," Wilsons said.
"The Wilsons Advisory Natural Resources team forecasts a long-term lithium carbonate price of $20,000/t."At (current) spot prices of $13,000/t, there is 50% upside in the long-term lithium price based on these assumptions."Forecasts, of course, are just that, predictions which may (or may not) prove to be correct.But there is so much smoke coming off the lithium sector that it's reasonable to assume that there's a fire under the price – and not another EV going up in flames after a battery explosion.
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