Lithium shares crater as sentiment for battery material turns

Alex GluyasJun 1, 2022 – 5.44pm

Shares in ASX-listed lithium companies fell sharply on Wednesday following predictions from Goldman Sachs that the price of the material would fall and efforts by Argentina, a major producer, to crack down on alleged under-pricing of exports.

Pilbara Minerals led the sell-off, diving 22 per cent to $2.30 in its worst session since April 2015. Liontown Resources tumbled 19.1 per cent to $1.14, the largest drop since August 2019 for the shares, and Allkem fell 15.4 per cent to $11.60, the biggest drop in more than seven years.

The rapid declines followed news that Argentina’s customs agency had set a new reference price of $US53 per kilogram for lithium carbonate exports in an effort to reduce alleged under-quoting of exports.

“This is the government cracking down on exporters under-quoting prices on their customs forms,” Richard Coppleson, a Bell Potter strategist, said in a note referring to the broker’s view on the move by Argentine customs.

The change comes in response to irregularities detected in shipments over the past two years and aims to prevent under-invoicing and enhance transparency.

The reference price “is essentially a mechanism for customs to request the integrity of contract pricing where there is a large variance,” Citigroup said.

Argentina currently has the biggest pipeline of lithium projects in the world, according to Bloomberg, with its exports of lithium carbonate exceeding 27,000 metric tonnes last year.

While Bell Potter noted Argentina’s move isn’t a price cap, and it isn’t in the Argentinian government’s best interest to restrict lithium exports, the broker acknowledged that the reference price provides a floor price for tax purposes.

It also shows a major lithium exporter becoming more involved in the sector, which is seen by many as a risk.

The pressure on lithium companies also followed a research note from Goldman Sachs which declared that the battery metals market has peaked after a feverish run through the pandemic.

“Investors are fully aware that battery metals will play a crucial role in the 21st century global economy,” Goldman analysts including Nicholas Snowdon and Aditi Rai said in the broker note. “Yet despite this exponential demand profile, we see the battery metals bull market as over for now.”

The broker forecast a “sharp correction” in lithium prices which it expects to average under $US54,000 a tonne this year, down from a spot price of over $US60,000 per tonne. Goldman predicted prices will fall to an average of just over $US16,000 in 2023.

“A surge in investor capital into supply investment tied to the long term EV demand story, [is] essentially trading a spot driven commodity as a forward-looking equity,” Goldman analysts said.

“That fundamental mispricing has in turn generated an outsized supply response well ahead of the demand trend in focus.”

Lithium prices have soared over the past year due to surging demand for electric vehicles which has sparked concerns about supply shortages.

Credit Suisse analysts also said they believe the lithium price rally is coming to an end and that prices will begin to retreat as the supply shortage fades.

The broker lowered its price targets and ratings for Allkem and Pilbara Minerals, suggesting that investors should cash in their winnings.

There were also reports this week that Chinese automaker BYD intends to buy six lithium mines in Africa.

The company estimates that the mines will produce about 1 million tonnes of lithium carbonate, giving it enough raw material to build at least 27.78 million electric vehicles which could satisfy BYD’s needs for the next 10 years.