Lithium Price Surge to be Short-Lived, Analysts Say
Lithium prices surged this week on concerns about supply disruptions in China, but analysts are warning the rally will be short-lived.
A halt in production at Chinese lepidolite mines, which supply lithium-bearing mica for battery chemicals, is expected to be temporary, according to BMO Capital Markets, which cited a webinar by analysts at Shanghai Metals Market (SMM).
A modest domestic deficit in August will flip to oversupply in September as mines resume output, SMM forecasts.
The price of battery-grade lithium carbonate has jumped since the shutdowns, with contracts in China trading above 80,000 yuan ($11,150) per tonne versus less than 60,000 yuan per tonne in June. Prices are expected to stabilize in the mid-70,000 yuan per tonne range in September and October before retreating to about 70,000 yuan by year-end, according to SMM. The price on Thursday is $11,525 per tonne, according to The Wall St. Journal.
“The most likely scenario being a short-term production halt followed by orderly resumption of supply once all approval procedures are finished,” BMO commodities analysts Helen Amos and George Heppel said in a note on Thursday. “There is more than enough stock for chemical producers to maintain output using lepidolite ore inventory.”
Long-term demand
Western lithium producers are contending with low prices and an oversupplied market while continuing to invest in new projects and refining capacity to meet long-term demand.
Rio Tinto (LSE, NYSE, ASX: RIO) expanded its global footprint with its $6.7 billion acquisition of Arcadium Lithium (NYSE: ALTM), while Lithium Americas (TSX, NYSE: LAC) advances its Thacker Pass mine in Nevada with support from General Motors (NYSE: GM) and US government funding.
In Australia, Tianqi Lithium and IGO (ASX: IGO) are working to ramp up output at their underperforming Kwinana refinery, and in Europe, Vulcan Energy Resources (ASX: VUL) is pursuing net-zero-carbon lithium from geothermal brines as automakers seek more sustainable supply options.
The price spike was triggered by Contemporary Amperex Technology suspending production at a mine in central China’s Jiangxi province after a permit expired, sparking a surge in futures trading and lifting shares of lithium producers including Albemarle (NYSE: ALB), SQM (NYSE: SQM) and Sigma Lithium (Nasdaq: SGML). As well, Zangge Mining halted brine production at Qarhan Lake and Jiangxi Special Electric Motor’s Yichun lepidolite mine began a 26-day maintenance period on July 25.
While the shutdown affects an estimated 4% of global supply, analysts at UBS and Macquarie said this month high stockpiles and steady production from other sources mean the impact on fundamentals is limited. The size of the outage is roughly in line with the current global surplus, making sustained price gains unlikely, The Financial Times reported.
