Apologies if this has been posted... update from Citi...
Lithium
A downturn in spot Chinese lithium carbonate prices has impacted lithium equities. While Citi acknowledges the deteriorating medium-term fundamentals because of surging supply the correction in equities is considered overdone. The volatility in commodity prices does not affect the broker's valuation of these equities, which are underpinned by long-life assets and low costs.
China's domestic brine carbonate supply has been stronger than expected and demand lacklustre because of changes in subsidies. Yet Citi expects spot lithium prices to recover in the December quarter to US$10,000/t, driven by higher seasonal demand and the winter impact on brine supply in China. Those major producers contracting prices for 3-5 years will be insulated from the correction and continue to deliver volume growth.
Citi expects the pipeline from marginal projects will be curtailed but ongoing surpluses appear inevitable because of those projects that are already financed. Citi maintains long-term price estimates of US$7500/t for industrial lithium carbonate, US$9000/t for battery grade and US$9500/t for hydroxide. The broker has Buy ratings for Orocobre ((ORE)), Galaxy Resources ((GXY)) and Pilbara Minerals ((PLS)).
GXY Price at posting:
$2.09 Sentiment: Hold Disclosure: Held
