Lithium market to remain in deficit despite supply efforts and price volatility: Macquarie

ByKerry Sun

Thu 17 Nov 22, 10:28am (AEDT)

Source: iStock

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MIN

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$15.8B

PLS

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$14.3B

IGO

MktCap:

$11.7B

AKE

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$8.9B

LTR

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$4.3B

CXO

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$2.6B

GL1

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$499.7M

Commodities in article

Lithium

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KEY POINTS

• Macquarie expects the lithium market to remain in deficit through to 2030
• Lithium carbonate futures on the Wuxi Exchange fell -7% on Monday but stabilised the next day, up ~1%
• Macquarie remains outperform on all lithium stocks under its coverage, except Core Lithium

Macquarie said lithium supply remains tight at each key component of the EV battery supply chain despite the recent volatility in lithium carbonate prices in China.

"Despite near-term future price volatility, we believe buoyant lithium prices present potential for valuation upside to all lithium names under our coverage universe," Macquarie analysts said in a note on Wednesday.

Lithium carbonate futures on the Wuxi Stainless Steel Exchange fell around -7% on Monday amid speculation that a major Chinese cathode producer slashed its production targets, a potential red flag for softening demand for the battery metal.

Supply remains tight

Shanghai Metals Market's lithium carbonate inventory data, which covers an extensive 30 lithium refiners and more than 70 cathode makers in China, showed that lithium carbonate inventories continued to decline in October, according to Macquarie.

Lithium inventory levels in China (Source: Macquarie Research)

The analysts pointed out that Wuxi lithium carbonate prices stabilised on Tuesday, trading 1% higher than where it closed on Monday.

No deficit in sight

Macquarie reaffirmed its view that the lithium market will remain in a deficit despite ongoing supply efforts.

"While most lithium companies have upgraded their near-term growth outlooks, we highlight that the actual output in the September quarter was mixed, with misses in production and delays in project commissioning," the analysts said.

Source: Macquarie Research

Lithium stocks at a glance

"Amongst incumbent lithium producers, both Pilbara Minerals and Mineral Resources boast material valuation upside close to 60% at spot prices," the bank said.

"Allkem sees a valuation upside of ~50% as the company continues to progress its growth strategy, while IGO enjoys an upside of 37%, reflecting its more diversified portfolio after the recent Western Areas acquisition."

Global Lithium was viewed as an emerging name that had the 'greatest valuation upside in a spot price scenario amongst developers'.

While Core Lithium had the lowest upside, of just 15%, due to risks surrounding project delays, changes in senior management and wet weather conditions.

	Ticker	Company	Rating	Target price
MIN	Mineral Resources	Outperform	$125.00
PLS	Pilbara Minerals	Outperform	$7.70
IGO	IGO	Outperform	$21.00
AKE	Allkem	Outperform	$21.00
LTR	Liontown Resources	Outperform	$3.40
CXO	Core Lithium	Neutral	$1.80
GL1	Global Lithium Resources	Outperform	$4.40

Source: Macquarie Research | Table: Market Index