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St....ead Highly-priced newswires would have you believe that the lithium market is kaput because the spot price in China has come off some 50% since November.
But Ga......iro wouldn’t be abandoning the sector on the strength of the “50% lithium price crash’’ horror stories.
While the Chinese domestic spot price for lithium carbonate has come back big time, at about $US43,000/t (prices under contract are higher, and spot prices elsewhere in Asia are higher), it remains a fantastic price compared with production costs of $US5,000t-$US15,000t, depending on the process route.
So margins are still nice and fat, albeit not as nice and fat as they were last year.Garimpeiro thanks the newswires for their hysteria campaign because it has knocked the stuffing out of the share prices of ASX lithium stocks. For no good reason either as no stock analyst ever plugged in $US80,000-plus prices to arrive at share valuations/target prices.
Analysts have responded to the lithium price weakness in the opening months of 2023 by trimming their earnings expectations/share price targets for the leading lithium stocks.
But because lithium’s current price is closer to where the analysts were at anyway, the impact on earnings expectations is not particularly significant, meaning share price targets remain pretty much where they were.
When viewed against the sector’s beaten up share prices, it means that value has returned in a big way.
All that came through in a 56-page lithium market update by Macquarie during the week.
The firm has an “outperform’’ rating on all of the 18 ASX lithium stocks under its coverage. While 10 of the stocks had their share price targets trimmed, all had price targets well ahead of their current beaten up share prices.
.’’It also expects the lithium market to remain in deficit, with the deficit to reach 100,000t in 2025.
While Macquarie lowered its CY2023 regional lithium prices by 21-23%, and cut Chinese lithium prices by 24-28% to reflect weak spot prices, its long-term lithium and spodumene prices were increased by 10-25%.