Lithium stocks take a dive

A correction in the lithium market turned into a rout today, with Pilbara Minerals and Liontown Resources leading the fall after two bearish research reports.

Allkem, Firefinch and Lake Resources also fell sharply, while IGO, Vulcan Energy Resources and Mineral Resources all finished much lower.

The sell-off was led by established producer Pilbara Minerals, which closed down 22 per cent at $2.30 per share.

Two months ago, when lithium stocks were riding high, PLS briefly traded as high as $3.60 per share.

Liontown Resources, which is preparing to develop its Kathleen Valley lithium mine, closed down 19 per cent at $1.14.

Its share price peaked around $2.10 in early April.

The sell-off came after global investment banks Goldman Sachs and Credit Suisse dramatically revised their forecasts for the lithium market.

Reports that Argentina had set a reference price on lithium to stop ‘irregularities’ added to the market’s nerves.

Credit Suisse said a perfect storm of lockdowns, demand destruction and global economic concerns had eaten into discretionary spending, thus reducing the demand outlook.

It also cited an “astonishingly rapid” supply response.

“We now see a balanced market in 2023/24, and surpluses threaten from 2025, a major change from previous deficit forecasts,” it said.

“We previously considered the deficit was intractable, but the world has changed with inflation, war and lockdowns souring the demand outlook, whilst the pace of supply response to spiking prices has been more rapid than anticipated.”

It cited WA producers Talison Lithium (part-owned by IGO) and Mineral Resources (through its joint venture with Albemarle) along with Chilean company SQM (which has a WA joint venture with Wesfarmers) as major contributors to the supply increase.

Credit Suisse said there had been “demand destruction” in the global electrical vehicle market, which is one of the major users of lithium and other battery metals.

It attributed this to a 30-40 per cent increase in battery costs, lockdowns delaying production and inflation eating into consumer discretionary budgets.

Meanwhile, Goldman Sachs has forecast the benchmark China spot lithium carbonate price to correct from the current level of US$61,800/t to US$44,300/t in the second half of this year, US$16,372/t in 2023 and US$11,000/t in 2024-25.

“We expect accelerated supply expansions in China, Australia and South America would ease the market balance from a deficit of 11 per cent in 2021, to a balanced market in 2022 and a potential 18 per cent to 23 per cent surplus in 2024-25,” it said.

Goldman highlighted the impact of increased supply from China.

“The major incremental change versus our prior forecast is higher supply from China, especially from lepidolite (mica), a hardrock lithium resource with lower grade and different chemistry than traditional spodumene,” it said.

“We now expect nearly 350,000t LCE of integrated chemicals from China to come online by 2025, contributing to nearly one-third of the global expansions over the period.”

It estimated the long-term sustainable mid-cycle price to be US$15,000/t.

Goldman said its global commodity team has also cut its nickel price assumptions.

Global nickel prices are forecast to fall by 11-19 per cent in 2022-24 to reflect downward pressure from China’s COVID lockdowns and increased Chinese supply.

TODAY’S PRICE MOVES BY MAJOR LITHIUM STOCKS

• Pilbara Minerals down 22 per cent to $2.30 per share.
• Liontown Resources down 19 per cent at $1.14.
• Allkem down 15.4 per cent to $11.60.
• Firefinch down 13.5 per cent to 96 cents.
• Lake Resources down 12.9 per cent to $1.35.
• IGO down 11.7 per cent to $11.16, after falling as low as $10.68 during the day.
• Vulcan Energy Resources down 8.2 per cent to $7.52
• Mineral Resources down 8.1 per cent to $58.70