Banter and general comments, page-38894

Citi via an AFR article have among the most bullish 2025 forecasts I've seen recently whereby Citi see scope for a 100% price increase from their 2024 forecast low. Unsurprisingly the AFR article focused on further expected fall to $10k, rather than an expectation by Citi that prices could double in the next year from that forecast low. The comment by Citi was:


Ask yourself these questions:

• If you think (as Citi have stated) lithium prices may double within 6-18 months how long do you keep your short position open?
• If you plan to close your short position soon, do you tell everyone or suggest prices have further to fall?

I'd suggest that if Citi believe their 2025 outlook they are looking to close their short positions in the comparatively near future.

Market size and lithium inventories
The argument Citi made around falling prices related to inventories. To make any rational sense of inventories you need to consider the size of the market and changes in that market size. Inventories are best considered in days, weeks or months product, not in absolute volumes. The lithium market was ~300kt in 2019. It was ~500kt LCE in 2021. The market was ~1,000 LCE in 2023. Since 2021 the market has been growing at 250ktpa. Most of that growth is from China which is still growing quickly. Annual growth forecasts are typically in the 200-300ktpa range. For simplicity, if inventories were 10% of this volume and were to be maintained at 10% of volume they would have grown from 30kt to 100kt. If inventories are 10% of market size and the market grows to 3M LCE then inventories will probably need to grow to ~300kt. Inventories are only a problem if they grow to large levels relative to the size of the market.

The GS estimates put 2019/2020 over supply at 70kt in a market that was ~300kt. When you add on BAU inventory levels, the market could have been at 30-50% of annual demand inventory levels. That level put severe pressure on prices. The inventory today is around one month across the supply chain areas noted below. A months supply in a quickly growing market doesn't have the same potential to crash prices.

The chart below shows inventories in June 2023 of ~84kt. by June 2024 they have grown to ~104kt. Relative to >1,000kt demand levels inventory values are not high. This doesn't however stop Citi pointing out inventories are growing and suggesting lithium prices should possibly fall further. Which side of the trade are they on now (or going to be on come 1 July and they get a window of not needing to report their position for a while)?

Also how much of that inventory is below battery grade?


Note - thank you Carl Capolingua for including the chart above in your Wednesday 26th June market index article.

https://www.marketindex.com.au/news/lithium-in-freefall-remain-bearish-near-term-citi
Lithium in freefall, remain bearish near-term –Citi (marketindex.com.au)