Lithium prices expected to rebound on supply curtailment and short covering, says Citi

Lithium prices are expected to recover over the next two to three months by as much as 25% due to supply curtailments and a physical market rebalancing, according to analysts at Citi.

The recent suspension of operations at Contemporary Amperex Technology Co., Limited (CATL)'s lepidolite mines in China, which account for approximately 6% of global lithium carbonate equivalent (LCE) supply would be a major catalyst for prices, analysts noted.

The closure of CATL’s mining operations comes at a time when lithium fundamentals have remained weak, with prices declining over the past year. According to Citi, short positions have accumulated on global exchanges like GFEX and COMEX, reflecting the bearish sentiment.

However, Citi reports that it closed its lithium short recommendations a month ago, realizing 30-35% profits on August 2024 and December 2024 trades.

"Recent closures and some re-stocking have seen the Chinese lithium market balance up in recent weeks," Citi’s report notes. The closure, combined with demand from electric vehicle (EV) manufacturers and other sectors dependent on lithium, is poised to shift the market from surplus to deficit in the near term.

Alongside supply concerns, Citi anticipates a wave of short covering as market conditions change. "We are likely to see investors cover their short positions and prices rally to $13,000-$14,000 per tonne on COMEX," analysts wrote.

Short positions have been a dominant force in the lithium market, with traders betting on further price declines amid bearish sentiment over the past year.

However, Citi analysts caution that lithium’s fundamentals have been volatile, and sustained recovery will depend on broader supply and demand dynamics in the coming months.

Citi's forecast comes as lithium continues to play a critical role in powering the global transition to electric vehicles and renewable energy storage. While lithium prices have been under pressure, the report signals that market rebalancing and supply curtailment could provide a short-term price boost.