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Goldman’s bearish lithium price callstuns market

Australia’s $60 billion lithiumsector faces a whipsaw 2023 as brokers jostle over the valuation of thesharemarket’s hottest growth stocks, deploying a wide range of commodity priceforecasts with mixed results.

Last week, Goldman Sachs led thebears by forecasting the lithium carbonate price to fall to $US53,300 a tonne in 2023 before cratering to $US11,000 a tonne in 2024 as more supply comes to market. By way of comparison, consensus lithium price targets for 2024 are nearly triple Goldman’s forecasts at $US29,063, according to Morgan Stanley.

The lithium bulls are led by Macquarie Research, which calls forprices to reach an average $US62,586 a tonne in financial 2023 and remainsteady around $US72,500 a tonne until financial 2026 on a supply deficit.

The schism between broking powerhouses Goldman and Macquarie ispartly due to difficulty forecasting supply and demand in a fast-moving marketas public and private stakeholders lift investment in battery supply chains tomeet decarbonisation targets.

“Despite near-term price volatility, we believe buoyant lithiumprices present potential for valuation upside to all our lithium names,”Macquarie told investors on November 16.

It saidIndependence Group, Allkem, Pilbara Minerals and Mineral Resources boastvaluation upside between 37 per cent and 60 per cent if spot lithium pricesmaintain elevated levels.

However,lithium sceptic Goldman Sachs sunk the sector last week as it initiatedresearch coverage on Core Lithium, Pilbara Minerals, Liontown Resources, andIndependence Group.

“Whilewe see earnings support for the Australian stocks over 12 [to] 18 months onprice lags, on a 12-month view we expect lithium stock prices to fall aslithium prices decline from record peaks,” the broker said.

Goldmanexpects major lepidolite and brine supply expansions in China to lift thenation’s lithium production 37 per cent in 2023, with increased exports ofChilean brine and Australian spodumene to lift rest of the world production by48 per cent.

Totalglobal supply is forecast by Goldman to increase by 221 kilotonnes in 2023 and321 kilotonnes in 2024.

“Theteam believes the battery maker overcapacity, on the back of acceleratedcapacity build-out amid a decelerating growth of new energy vehicles sales willeventually weigh on lithium prices and expect this dynamic to start playing outin 2H23,” it said. “Our global team’s EV demand forecast remains compliant witha Paris 1.5 degrees scenario.”

Citi isslightly below consensus calls in forecasting $US40,348 a tonne in 2023 and$US25,000 a tonne in 2024.

Sharemarketboom

Thelithium carbonate price is up eight-fold since 2020 and more than four-foldsince 2021 in a super-cycle that has quadrupled the value of the sharemarketsector from $15 billion to $60 billion over the same period.

Chris Ellison’s lithiumproducer Mineral Resources now boasts a $16.7 billion valuation after racing 80 per cent higher in 12 months to a record high on December 5, with Pilbara Minerals up 68.3 per cent to a $13.4 billion valuation in 12 months.

Sharesin West Australian explorer Liontown Resources are up 1750 per cent in 5 yearsto a $3.8 billion market value, with Northern Territory-based Core Lithiumrocketing 1362 per cent over the same period. However, the latter has retreated37 per cent over the past month, partly after Goldman slapped a sell rating onit.

Thebroker’s market-shaking report rated $8.3 billion South America-based lithiumbrine producer Allkem a buy and said it has the best growth outlook among theproducers, with production to quadruple by financial 2027.

Chinastill dominates demand for the battery-making ingredient and is expected toproduce 76 per cent of lithium-ion batteries in 2022, according to BenchmarkMinerals Intelligence.

Theindustry body favoured by lithium bulls quotes spot indices for lithiumcarbonate, spodumene, or hydroxide daily and tips demand to exceed supply by 7per cent out to 2030 partly as long-range EVs will require larger batteries.

Themarket’s eruption has shifted the industry a little from negotiating privatesupply contracts over fixed periods towards a more transparent price structuretied to spot reference prices reported by agencies and producers.

Lithiumcarbonate futures are also traded in renminbi on China’s Wuxi Steel Exchange.