https://www.marketindex.com.au/news/two-reasons-why-lithiums-free...

https://www.marketindex.com.au/news/two-reasons-why-lithiums-free-fall-may-have-more-to-go

Key Points

• Lithium prices have taken a sharp turn lower in recent weeks, with several key markets hitting two and a half year lows
• Two separate broker notes help explain the recent weakness, but also paint a bleak picture for an imminent bounce
• We investigate the key production and demand pressure points that might make or break the lithium market over coming months

Lithium prices have taken a sharp turn lower in recent weeks, with several key markets hitting two and a half year lows. The price of lithium carbonate in China, generally considered the lowest common denominator of lithium minerals prices, is down 33% since its April peak and 87% from its all-time peak in October 2022.

Lithium Carbonate 99.5pct Battery Grade (China, Japan & Korea) RMB/mt (Source: SMM)

Over roughly the same time, spodumene concentrate – the hard rock version produced by Australian-based miners like Pilbara Minerals (ASX: PLS), Mineral Resources (ASX: MIN), IGO (ASX: IGO), and Liontown Resources (ASX: LTR) – is down nearly 36% and over 90% respectively.

S&P Global Platts Australian Spodumene Concentrate 6pct Assessment ($US/t) (note I only started charting this one back in December. The highest recorded price for spodumene 6% I could find reference to is US$8575/t from here:Ground Breakers: Another mind-blowing record from Pilbara Minerals spod auctions (Source: *, 17 November 2022).

The general consensus among themajor brokers and research houses is that the problem remains a wall of supply from Australian, Chinese, South American and African producers – who continue to progress several major ramp-ups despite lower prices – against a backdrop of slowing demand from the EV sector.

In the interest of keeping you up to date on the developing and dynamic situation in lithium minerals, here’s the latest from three separate research reports released over the last few days from Morgan Stanley, Goldman Sachs, and Macquarie.

Macquarie: “Australian Lithium and Rare Earths Miners Seeking a market bottom”

Many lithium market watchers speculated that as lithium prices fell higher cost, lower quality producers like China’s lepidolite miners, and higher cost African miners, would be forced out of the market. Also, major producers in Australia and Chile would be forced to trim production or curtail planned ramp-ups.

The hope was this would provide a natural balance to what has been a massive supply response to the lofty lithium minerals prices of 2022. Macquarie notes that this has so far largely not occurred, as lepidolite miners, African producers, and newly commissioned brine producers in South America have chosen to cut production costs instead of cutting production.

The broker notes that cost reductions in the order of magnitude of greater than 10% had been achieved at some so called “marginal cost producers”, and some of them had also reiterated their full year production guidance along with assurances of further cost cutting measures to come.

The updates on production guidance from other high cost lithium producers will be a key focus in the near term as the lithium market seeks a bottom.

– MacquarieMacquarie ASX lithium coverage. Source: Macquarie Research

Two big reasons why lithium’s free fall might have more to go

The two key takeaways out of the research presented by the three brokers are these:

1. Demand for lithium minerals from the Chinese EV industry remains subdued, and there remains a credible threat to this demand due to possible protectionist measures that might be implemented in the critical EU and US markets.

2. An impactful (on lithium minerals pricing) supply side response is yet to eventuate, because so far, producers have chosen to cut costs rather than cut supply.

Clearly the situation in the lithium market is dynamic and either of these factors could change quickly.

Its hard to stay optimistic when the wind is blowing the wrong way! Lets hope PLS doesn't start burning $ on its overseas purchase in the short term.