A state of panic swept through the lithium market last week, following bearish reports from the likes of Goldman Sachs and Credit Suisse.
“Investors are fully aware that battery metals will play a crucial role in the 21st century global economy,” Goldman Sachs analysts Nicholas Snowdon and Aditi Rai said in a note.
“Yet despite this exponential demand profile, we see the battery metals bull market as over for now.”
Goldman Sachs said there had been “a surge in investor capital into supply investment tied to the long-term EV demand story, essentially trading a spot-driven commodity as a forward-looking equity”.
“That fundamental mis-pricing has in turn generated an outsized supply response well ahead of the demand trend.”
Credit Suisse also harnessed concern for the supply versus demand balancing act, forecasting surpluses in 2025.
“We now see a balanced (lithium) market in 2023–24, and surpluses threaten from 2025, a major change from previous deficit forecasts,” Credit Suisse analysts said in a note.
“We previously considered the deficit 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.”
ASX lithium stocks such as Pilbara Minerals, Allkem and Liontown Resources tumbled in the wake of the reports, but the plunge was only momentary.
On Friday, Pilbara Minerals’ share price had risen 6.1 per cent, Allkem was up 3.4 per cent, while Liontown had clawed back 5.8 per cent on the day.
Cannacord mining analyst Reg Spencer suggested Goldman Sachs’ report was taken out of context.
“That oversupply in the market that Goldman Sachs is referring to is in lithium production from China lepidolite sources which is lower grade, difficult to process and more expensive to process in comparison to spodumene,” he said.
“I’ve been covering this sector for seven years and I can tell you supply always disappoints, especially from unconventional sources such as lepidolite that Goldman Sachs is referring to in their research report.
“Lithium projects are always behind schedule, always, and to say that the world’s supply issues are going to be resolved in three years from unconventional resources, which means higher costs to produce and extract … I think is wrong.”
Incoming Pilbara Minerals chief executive officer Dale Henderson also called for calm, highlighting the company’s recent spot market success via its Battery Material Exchange (BMX) platform.
“It’s a fairly bold call to say the peak has occurred and the downhill trend will start within this calendar year,” he told The Australian Financial Review.
“That (the auction) was only a week ago and there were groups clamouring for that product, so we see that strong demand. And I note in Goldman’s report that they support strong demand (too), but what they’re suggesting is there’s strong supply coming on foot.”