Buy SQM After Slump, Investment Thesis Intact, JPMorgan Says By...

Buy SQM After Slump, Investment Thesis Intact, JPMorgan Says
By Eduardo Thomson
(Bloomberg) --
SQM, GXY, ORE and KDR are top picks for JPMorgan to gain exposure to lithium producers, according to a note written by analysts Lucas Ferreira and Mathew Hocking.

• SQM, ALB slumped yesterday after Morgan Stanley issued a report recommending to sell both stocks, saying that lithium carbonate prices would fall ~45%
• JPMorgan reiterates its seaborne lithium carbonate price estimates: $14,000/t in 2018E, $14,250/t in 2019E, $13,000/t in 2020E, and $10,000/t long term
• The lithium market is small and underdeveloped, so pricing volatility will be high, but when valuing assets with multi-decade operating lives, using a long-term price set at marginal cost implies no further capital will be incentivized into the upstream lithium market
• This doesn’t correlate with JPMorgan’s demand growth expectations from 250ktpa LCE in 2017 to around 1Mtpa LCE by 2030
• Near-term prices supported by tight market with inventories near zero in special high-quality material
• Spot prices in China remain near record highs
• JPMorgan says it prefers exposure to battery-grade LCE producers
• Sector valuations should remain supported by scarcity value, EV thematic, and 15% five-year demand CAGR
• SQM investment thesis remains intact:
  • Corfo deal makes the company more investable in the long term and gives it the ability to gain share
  • Earnings to be supported by positive near-term volume and prices in all businesses