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Macro Intelligence: lithium and navigating the ups and downs for potential rebound in 2024

Dive into this week's IG Macro Intelligence to uncover the current state of the lithium market and its potential for a significant rebound in 2024 amid oversupply concerns and changing demand dynamics.

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Article by Juliette Saly (ausbiz)

In this week’s edition of IG Macro Intelligence, we take a look at the outlook for lithium and its impact on market sentiment.

Lithium's rise and fall

After rallying to a record high in 2022, lithium prices have collapsed. The price of battery-grade lithium carbonate in China is down over 75% in the past 12 months, due to a supply glut and as higher interest rates impact demand for electric vehicles.

Source: Refinitiv

Goldman Sachs' forecast and market dynamics

Prices for lithium hydroxide and spodumene have fallen by a similar amount from 2022 levels.

Goldman Sachs sees further downward pressure in 2024 due to oversupply.

Back in 2022, analysts at GS warned that investors wanting exposure to the green energy transition piled in too quickly. They estimated the lithium market would return to a deficit in 2024; but now the analysts say it could take longer. Goldman Sachs analysts now see the lithium market bottoming out in 2025.

“In this context, we maintain our bearish view on the lithium market and lower our 12-month target for China Lithium Carbonate (excluding VAT) to US$11,000 a tonne and CME Asia CIF Lithium Hydroxide to US$12,000/t (from US$15,000/t and US$16,500/t respectively previously),” the analysts wrote in a note.

Benchmark mineral intelligence's bearish outlook

Delineate Benchmark Mineral Intelligence's more conservative stance, emphasizing their extended timeline for lithium market deficit and the challenges posed by oversupply. Consultancy firm Benchmark Mineral Intelligence is even more bearish. According to Bloomberg, they don’t see the lithium market in a deficit until 2028.

An oversupply in the market could continue to hamper a price recovery while demand is soft.

Many EV makers have begun cutting back on production or dialling back their EV expansion plans due to softening demand. In July, lithium futures started trading in China and since then bearish bets have been mounting.

Source: Bloomberg

Shaun Cartwright's bullish vision

Shaun Cartwright from Anandara Asset Management is on the side which believes lithium prices will rebound sharply in 2024. He told ausbiz, investors should focus on deliverability by the miners, and points out that if every lithium project comes online before the global net zero targets in 2050, there would be a 48% shortfall of the metal.

Future demand and growth projections

The global net zero for 2050 commitment will see continued demand for critical minerals tied to the energy transition, including lithium. The adoption of lithium-ion batteries to power the transition to cleaner energy, in particular, is expected to underpin demand for the soft white metal.

According to Statista, the global demand for lithium will surpass 2.4 million metric tons of lithium carbonate in 2030, doubling the demand forecast for 2025. Increases in battery demand for electric vehicles are expected to drive the demand, which is forecast to reach 3.8 million tons by 2035.

Meanwhile, BloombergNEF expects global demand for lithium to grow nearly five times by the end of the decade.

  • Stocks to watch

Wilsons Advisory believes the current pullback in lithium stocks, in line with the decline of the commodity, provides a good buying opportunity as demand growth over the next decade should support long-term prices.

  • IGO and Allkem

Goldman Sachs favours Aussie lithium stocks IGO Limited (IGO) and Allkem (AKE), citing free cash flow and growth metrics respectively.

Bell Potter has a BUY On IGO with a price target of $11.30, saying the stock “offers excellent leverage to lithium prices and the electrification thematic.” Bell Potter also believes IGO could become a takeover target due to its continued share price weakness.

IGO daily chart

Source: IG

Allkem daily chart

Source: IG
  • Pilbara Minerals

Adding to the recent interest in lithium miners, Australia’s largest pension fund, Australian Super has revealed it now owns a 5.1% stake in Pilbara Minerals.

Citi, Macquarie and Morgans are also positive on the stock. Macquarie is most bullish, with a price target of $7.10 per share - a more than 110% upside from current trading levels.

Pilbara Minerals daily chart

Source: IG

  • Core Lithium

Analysts are more mixed on the outlook for Core Lithium.

Macquarie has an Outperform, with a price target of 60c while Citi has downgraded the stock to a sell with a price target of 29c. That’s still a 26% upside from current prices. Australia’s lithium miners have fallen in line with the price of the metal.

FNArena sentiment indicator

Source: FNArena

Core Lithium daily chart

Source: IG

  • Liontown Resources

Liontown Resources has seen its share price hit by not only the downturn in lithium prices but a failed $6.6 billion takeover by America’s Albermarle.

Analysts are mostly positive on the stock due to its outlook and recent long-term agreement to facilitate the export of lithium from its Kathleen Valley project to LG Energy Solution, Tesla and Ford.

Macquarie has an Outperform with a target price of $2.70. UBS is neutral on the stocks with a price target of $1.50. Adding to his bullish view on the sector, Shaun Cartwright from Anandara Asset Management told ausbiz, he believes every portfolio should include the major Aussie producers.

Liontown Resources daily chart

Source: IG

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