‘Sell the rally’: Citi turns bearish on lithium Alex...

‘Sell the rally’: Citi turns bearish on lithium
Alex GluyasMarkets reporter
Mar 25, 2024 – 11.10am


Citi’s commodities team has turned bearish on the near-term prospects for lithium, suggesting traders take profits on the rebound in prices as the physical market tips into a large surplus over the coming 18 months.

Lithium carbonate prices in China have surged more than 15 per cent since the Lunar New Year holiday finished amid reports of potential domestic supply curbs, downstream restocking and short covering by traders.

But Citi believes prices will need to correct over the next six months to rebalance the physical market, as lower prices would delay brownfield expansion and force marginal producers to shut. That would help counter the large surplus, worth up to 10 per cent of global supply, Citi is expecting in 2024 and 2025.
“Investors [should] sell the rally as price gains appear to be detached from fundamentals,” Citi analysts wrote in a note to clients. The call comes just weeks after the broker declared that lithium prices had bottomed in the near-term.

The broker cut its six to 12-month forecast for lithium carbonate by 17 per cent to $US15,000 a tonne, which is below long-run incentive prices, meaning the point that encourages new supply. Citi would expect shelving or delays to new projects as a result.


Indeed, lithium miners have been reducing output following an 80 per cent plunge in prices from their cyclical peak. Earlier this year, Core Lithium said it would close its Grants project near Darwin, and IGO warned that production at the Greenbushes mine in Western Australia was likely to be marginally reduced.
More supply cuts needed

While Citi noted that around 100,000 tonnes of output has been cut already, it cautioned that figure was “insufficient” and another 100,000 tonnes would need to be slashed to balance the market.
And the current rally in lithium prices will only further delay the necessary supply curtailments, according to Citi analysts.

The broker projected that more than 2 million electric vehicles beyond its base case estimates would need to be produced this year and in 2025 to clear the lithium market of excess supply – a scenario which Citi says is “highly unlikely”.

Citi’s bearish shift comes just weeks after Goldman Sachs warned traders against misconstruing the rally in battery metal prices as marking the end of the bear market.

Goldman also partly attributed the rebound in prices to traders covering their short positions, and cautioned that significant supply pipelines alongside downgrades to EV demand meant the lithium market would remain in a sizeable surplus this year.

Goldman is forecasting that lithium carbonate prices will drop a further 27 per cent over the next 12 months to $US10,000 a tonne.

However, the broker remains bullish on the broader commodities sector and doubled down on its call for a rebound in returns this year as global industrial activity recovers and central banks deliver rate cuts in the coming months.

While the S&P GSCI benchmark, one of the broadest measures of global commodities, has rallied 9 per cent this year, Goldman expects that to climb to 15 per cent on a total return basis by the end of 2024. That would mark a strong rebound from the benchmark’s 4 per cent decline last year.

The broker is tipping further support for commodities demand and prices, particularly across copper, aluminium and oil products.

Lithium miners remain among the most shorted stocks on the ASX including Pilbara Minerals, with 20 per cent of the shares held by short sellers.