Macquarie suggests lithium price upturn could be imminent as M&A...

Macquarie suggests lithium price upturn could be imminent as M&A frenzy continues
Newly-listed explorers James Bay and Pioneer Lithium join the game. Plus, signs of a turn for rare earths, which is good news for Codrus.
6 hours ago
Print Wire

Barry FitzGerald
Independent Journalist

It is all happening in the ASX lithium space.
Gina Rinehart is taking on US giant Albemarle in a potential shoot-out for Liontown (ASX: LTR) and Chris Ellison’s Mineral Resources (ASX: MIN) has picked up the Bald Hill mine from the administrators, as well as somehow becoming the dominant force at Delta Lithium (ASX: DLI) with a holding of only 17.44%.
Then there was the confirmation that no less than Chile’s state-owned copper company Codelco was taking the country’s renewed nationalistic fervour seriously by putting Lithium Power (ASX: LPI) in its sights, fuelling a 9c price spike to 35c for LPI.


All that in just a week and at a time when lithium stocks generally have been under the pump since early August on weakening lithium prices.
Normally it might be expected that M&A action would be parked up while lithium prices bottom out from their fall from the extraordinarily high levels witnessed last year.
But clearly the belief is that the supply challenge, one that Rio Tinto suggests means 85% of expected supply growth from 2023-2050 will have to be met by new mines, has not gone away.

And the current lithium price weakness could be swept away soon anyway as the weaker prices are beginning to knock out higher-cost Chinese supply, opening up a widening supply gap.
It is a theme that Macquarie picked up on during the week with a market intelligence report suggesting that the weaker prices could accelerate the lithium market’s rebalancing.

“Given lower lithium prices, we note production cuts from both lithium carbonate (-0.6% month-on-month to 45,000t) and lithium hydroxide (-1.6% to 15,000t) in China in August,’’ Macquarie said.
“By contrast both cathode and battery makers are planning to lift production slightly in September. Given limited potential for destocking, the production plan mismatch could result in a supply gap in China, which could in turn, drive lithium raw materials demand, in our view,’’ the analysts said.
There is some history worth remembering.

“A continuous supply deficit will ultimately drive up lithium prices, and the time lag for a price response depends on downstream inventory levels,’’ Macquarie said.
“It was not until lithium inventory from cathode players fell from 0.68 months in July 2022 to 0.21 months in October (12,000t of LCE) that lithium prices began to rise rapidly.’’
And here we are now, with the cathode inventory falling back this August to the same level of 0.21 months after three months of de-stocking. Whether the priced response is as explosive as it was last time remains to be seen.

What is known is that lithium remains about the only interest in the mining and exploration sector, with explorers of particular investor interest as they'll be at the forefront of delivering new mine development opportunities if there is any hope of the supply challenge outlined by Rio being met.
As a result, while the gold sector on the ASX has been tanking on the yellow metal’s dive below $US1900/oz in response to US interest rates/strong dollar, the lithium explorers have been absolutely popping.