Does anyone have access to the Macquarie Wealth report that came out today? This was reported in The Australian today ...
Tough times ahead for lithium: Macquarie
The lithium bears at Macquarie are tipping a tough time for Australian hard rock producers, suggesting a number may be forced out of the market as oversupply swells.
A note circulated by Macquarie Wealth Management says that, despite steady growth in demand for lithium batteries, the response from miners has been “wildly in excess of requirements”.
Macquarie analysts note a growing trend of “temporary” setbacks at lithium producers - including the April earnings downgrade by battery cathode maker Umicore; a delay in the ramp-up of Albemarle’s Chinese lithium hydroxide plant; Pilbara Minerals’ decision to reduce its concentrate production; and delays to Galaxy Resources shipments - suggesting they are evidence of significant oversupply in the market.
“In all cases, the events discussed have been explained to be temporary, but taken together it begins to paint a concerning picture. Not only electric vehicles slowing but energy storage system demand contracting outright; not just hydroxide weakness, but also carbonate; not just a problem with salts, but also rock oversupply,” the note says.
Macquarie says the issue for investors now is not whether prices and margins will fall, but which of the lithium producers will go broke and exit the market in the near term.
“Our initial view had been that the large South American brines producers would be best placed to survive due to their costs, but that was on a carbonate basis, which is the lower priced material,” the note says.
“Then we began to view the Australian miners with the foresight to build hydroxide plants as contenders too, but the delays to high-nickel cathode adoption has made this material’s demand less certain at least nearby, as we see from the price spread compression.”
“Ultimately it will probably be a mix of brines and mines, carbonates and hydroxides, but as the shift into a buyers’ market intensifies, product quality is likely to become key to survival.”
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