Pilbara in record lithium sale as analysts turn more bullish
Pilbara Minerals has reinforced analysts’ bullish lithium predictions after securing a record price for 5000 dry metric tonnes of the critical battery raw material sold on its unique digital auction platform (reports The Australian Financial Review)
26th May 2022
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As investors digested several upbeat brokers notes on lithium stocks, Pilbara on Tuesday night revealed it had secured a price of $US5955 a dry metric tonne for a cargo of spodumene with 5.5 per cent lithia via its Battery Material Exchange platform.
Including freight costs to China, the price for its fifth auction on the platform equates to around $US6586 a dry metric tonne for spodumene concentrate with 6 per cent lithia.
“Strong interest was received in both participation and bidding by a broad range of buyers,” Perth-based Pilbara said of the sale on its BMX, where the miner sells some of its spodumene from its Western Australia operations.
Macquarie analysts labelled the result “impressive”, exceeding the previous sale in late April by 5 per cent and their own estimates by 9 per cent.
“This was despite a 2 per cent fall in Chinese domestic lithium-carbonate prices since the fourth sale was completed,” the analysts added.
It came as Citi, UBS and Barrenjoey this week issued fresh upbeat research on the lithium sector, which has experienced phenomenal gains in the past two years as demand for electric vehicles outpaces supply. Despite lithium prices rising more than 10-fold in the past year, Barrenjoey lifted its 2022-2027 forecasts up to 73 per cent which “remain conservative against spot pricing”.
Barrenjoey’s spodumene forecasts of $US4372 a tonne and $US3000 a tonne for 2022 and 2023, respectively, are well below the price Pilbara secured this week in its auction.
The move highlights how the sector’s earnings upgrade cycle may have further to run as analysts continue to factor in lower prices than what miners receive, in part reflecting caution after the prior lithium boom came crashing down in 2019.
China’s recent lockdowns have also cooled lithium spot prices from last month’s all-time highs.
Citi analyst Maximilian Layton said while prices would likely moderate further from “extreme” levels, they would remain “higher for longer” as global EV sales grow at a compound annual rate of 35 per cent to 2025 -- from 10.7 million cars in 2022 -- and supply remains in deficit until sometime next year.
However, Barrenjoey’s veteran mining analyst Glyn Lawcock said the lithium market would remain in deficit through to 2030 “suggesting EV production will be limited by lithium availability, not customer demand”. Miners including Pilbara have also been adamant there is little chance lithium prices are heading back to prior lows.
Initiating coverage of the major Australian lithium players, Mr Lawcock said global EV sales would hit 30 million in 2030, or 30 per cent of new car sales, at the same time as supply grows by 958,000 tonnes to almost 1.5 million tonnes of lithium carbonate equivalent (LCE).
To put the potential imbalance in perspective, UBS’s “market leading” forecast for lithium demand is that it will grow 10 times to 5.8 million tonnes of LCE by 2030, led by EV demand of 4.9 million tonnes as penetration soars to 54 per cent of car sales.
In the near term, however, Mr Lawcock agreed prices would cool as more supply comes online, with IGO last week unveiling first production of battery grade lithium hydroxide from its Kwinana refinery where it is in joint venture with Tianqi Lithium.
But he said the risk was for higher rather than lower prices, and further out, market fundamentals remained strong.
“The current lithium market size needs to expand to 4 times 2021 levels,” Mr Lawcock said, citing many countries’ policies to ban or phase out internal combustion vehicles.
“Given the supply growth is projected to remain controlled by the main industry players, its addition to the market is expected to be orderly and is unlikely to result in an imminent return to market surplus.
“In the longer term, vast supply expansion is required to meet the projected demand in 2030. If we were to assume 100 per cent of all ... known projects are built on time, we would still observe a supply problem in the late 2020s into 2030s.”
PLS Price at posting:
$2.81 Sentiment: Buy Disclosure: Held
(20min delay)