Lithium prices prove ‘immune’ torecession anxietyLithium is...

Lithium prices prove ‘immune’ torecession anxiety

Lithium is proving to be largelyimmune from the volatility that has rocked commodity markets as prices soar inthe face of a looming global recession, prompting Macquarie to deliver anotherround of upgrades for producers and developers of the battery metal.

Lithiumprices have continued to hit record levels this year with spodumene, carbonate and hydroxide surging 243 per cent, 124 per cent and 152 per cent respectively.

This has fuelled more gains for producers of the batterymaterial which were among the best performers on the S&P/ASX 200 again on Tuesday, and extended their rally on Wednesday.

CoreLithium added 2.8 per cent to $1.54, IGO firmed 3.5 per cent to $16.22, MineralResources climbed 3.8 per cent to $82.09 and Allkem jumped 2.1 per cent to$15.79 on Wednesday morning.

Therecord-breaking run in prices comes despite strict COVID-19 restrictions inChina which have weighed on the broader commodity market, and the aggressivetightening by central banks which has hit demand for raw materials

However, lithium prices continue totrend higher as original equipment manufacturers (OEMs) look past near-termheadwinds to secure supply for their 2024-25 electric vehicle sales targets,according to UBS.

“Lithiumprices so far [have been] immune to macro weakness,” said Levi Spry, mininganalyst at UBS. This is “despite the obvious headwinds of China, Europeanelectric vehicle sales disappointing, and inflationary and monetary policyfactors”.

Macquariealso reiterated its bullish outlook on the lithium sector on Tuesday despiteciting near term headwinds, with analysts noting that supply security isgaining momentum and could lead to an even tighter market in the short term.

Whilelithium companies have tried to ramp up supply to capitalise on high prices,analysts highlighted that output in the September quarter was mixed, withmisses in production and delays in project commissioning.

Macquariedoesn’t expect to see material volumes from new spodumene producers until nextyear.

Thesefactors prompted the broker to upgrade its Chinese carbonate and hydroxideprice forecasts for 2022 to 2027 by between 5 per cent and 130 per cent, andits regional projections for 2023 to 2027 by between 30 per cent and 130 percent to match the pricing strength in China.

Macquariealso upgraded its short and medium-term spodumene forecasts to reflect itsexpectation of a persistent market deficit, and lifted its peak priceassumption by 30 per cent to $US6500 per tonne.

Our forecasts expect the market to remain in deficit given the limitedadditional output in the near term,” Macquarie analysts said. “Moreimportantly, we highlight that EV penetration rates are forecast to growfurther over the medium term.”

Macquarieimplemented material upgrades to its earnings forecasts for both lithium minersand developers under its coverage to account for higher prices.

Thebroker lifted its price target on Mineral Resources by 28 per cent to $120 andretained its “outperform” rating, and increased its target on Pilbara Mineralsby 31 per cent to $7.70, adding that the company offers the greatest leverageto spodumene prices.

Pricetargets for developers including Liontown Resources, Core Lithium and GlobalLithium Resources were lifted by between 12 per cent and 38 per cent.

UBSsaid it remained positive on the lithium sector, and maintained its “buy”ratings on Allkem and Mineral Resources, “neutral” recommendation on IGO and“sell” rating for Pilbara Minerals.