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ASX Rebalance: Copper in, lithium out as hot biotechs climb ranks

Story by Nadine McGrath

• 15h • 8 min read

Rebalance not so good for lithium

Lithium companies have fallen off the indexes with Arcadium Lithium (ASX:LTM) removed from the S&P/ASX100 and Core Lithium (ASX:CXO) removed from S&P/ASX 300.

“The lithium space remains mired in negativity, impacted by both demand and supply considerations,” Wendt said.

“The lithium boom has turned to lithium bust over the past two years as a wave of new supply overwhelms weaker-than-expected demand for EV batteries.

“We’ve been here before, with a similar boom-bust cycle during 2016-2017, but the difference this time is that there is very little prospect of a speedy recovery.

Wendt said the short-term outlook is for prices to remain weak as the market digests surplus material.

“Lithium producers view their product as a bespoke chemical tailored to battery-makers’ tight specifications rather than as a generic commodity.

“However, lithium’s price behaviour is increasingly mirroring that of any other commodity, with periods of high pricing encouraging over-production that then leads to periods of low pricing.”

He said compounding lithium’s price weakness has been a downgrade in expectations for EV sales, as the Chinese market matures, and the Western market loses some of its recent momentum.

“But there’s also been a change in the product mix, with sales of pure battery slowing and sales of hybrid gas-electric vehicles booming, even in China,” he said.

This isn’t great news, however good for lithium, as many hybrids use a nickel hydride battery with no lithium.

“The outlook for lithium for the remainder of 2024 and beyond remains somewhat pessimistic,” he said.

Whilst the worst is likely behind us in price terms, a rapid turnaround is highly unlikely, based on soft market fundamentals that don’t appear to show any clear indication of changing any time soon.

“The lithium market has potentially entered a new period of price stability.”