Material Matters: Deep Dive Into Lithium Pullback

This story features LIONTOWN LIMITED, and other companies.
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Despite weaker lithium prices and renewed supply concerns, leading brokers believe resilient demand, improving cash flow and attractive valuations continue to support the sector's longer-term investment case.

• Lithium supply fears overshadow strong demand
• Strong FCF for producers; growth spending to accelerate
• Electric vehicle momentum helps underpin price outlook
• Broker views on ASX-listed lithium companies

By Mark Woodruff

While lithium equities have surrendered most of their year-to-date gains as spodumene prices retreated from their May peak, UBS retains an Overweight stance.

The broker argues market fundamentals remain robust, and the pullback represents a re-rating toward more sustainable valuations, a view echoed by peers Macquarie and Morgans.

Rather than the beginning of a new downcycle, Morgans attributes the pullback to supply-driven repricing as investors reassess the near-term risk from restarting key lithium operations in China and Africa.

Demand remains resilient and, in the broker’s view, is not responsible for the recent price weakness.

Instead, it’s felt volatility in oil prices and renewed sodium-ion battery commentary have created noise, despite limited implications for the underlying trajectory in demand.

Similarly, Macquarie considers the recent weakness across lithium stocks to be overdone, with share price declines of around -45% for Liontown Resources ((LTR)) and around -30% for PLS Group ((PLS)), IGO Ltd ((IGO)) and Elevra Lithium ((ELV)).

Macquarie believes these moves are driven more by general sentiment and near-term earnings downgrades than by changes in underlying fundamentals.

Recent lithium price weakness is linked to the early July restart of Contemporary Amperex Technology Co Ltd’s (CATL) Jianxiawo lepidolite mine in China, which is expected to materially increase near-term lithium supply — and thus weigh on prices.

All lithium stocks are trading at implied lithium prices below Macquarie’s long-term assumption of US$1,350/t, which is seen as conservative relative to the market consensus range of US$1,400-US$1,500/t.

Casting doubt on some of the lithium price retracement, Macquarie has reservations around the ramp-up at Jianxiawo, noting recommissioning two idled refineries and recruiting workers following the 11-month suspension remain key execution challenges, while the outstanding environmental approval process presents an ongoing permitting risk.

Additionally, Macquarie believes the market may be underestimating future lithium demand. Earlier weakness in sales of Chinese electric vehicles (EVs), despite improving monthly trends, and uncertainty around energy storage system demand have led to an overly cautious outlook for 2027 and beyond, in this broker’s view.

Macquarie continues to favour IGO Ltd, citing attractive free cash flow yields across a range of lithium price scenarios without the need for major project commitments.

Morgans, meanwhile, lists PLS Group as its preferred lithium exposure, highlighting the company’s high-quality assets, low-cost operations, strong balance sheet and proven execution.

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UBS expects June quarter results to highlight a meaningful increase in free cash flow for lithium stocks under coverage, supported by stronger realised prices and robust margins.

On the flipside, while producers have moved quickly to revive and accelerate growth projects as lithium prices recovered from mid-2025 lows, this broker believes the market is underestimating the capital required to fund the next phase of expansion.

Higher FY27 and FY28 capital expenditure is equally a key theme across Morgans’ coverage, with FY27 capex forecasts rising/worsening by -105% for Pilbara Minerals, -72% for Liontown Resources and -50% for Mineral Resources ((MIN)), broadly in line with the increase in consensus estimates since April.

Morgans explains all three companies have materially increased growth spending across their assets, alongside previously deferred expenditure from the trough of the cycle, including mine development, waste stripping and infrastructure, in addition to ongoing sustaining capital.

Despite higher investment, Morgans continues to identify value across the sector.

As Pilbara Minerals and Liontown Resources are trading at more reasonable levels, this broker’s ratings are upgraded to respectively Hold and Accumulate, while Mineral Resources remains at Accumulate, midway between Buy and Hold in this broker’s system.

Spodumene spot pricing and forecasts

Benchmark spodumene spot prices rallied strongly into May, reaching nearly US$3,000/t, before pulling back to around US$2,200/t, still comfortably above prices seen in mid-2025.

Macquarie highlights Guangzhou Futures Exchange (GFE) lithium carbonate futures have been volatile, with the front-month contract falling to a late-June low of US$21,350/t.

A strong correlation is noted between GFE lithium futures and the performance of ASX-listed lithium producers.

Morgans has raised its lithium spodumene price deck across the forecast period, with the largest increase in FY29, up 30.2%, reflecting an expectation that the stronger near-term pricing environment will persist further along the curve.

Morgans’ long-term price projection remains unchanged at US$1,300/t, while its FY26 and FY27 forecasts continue to track close to spot prices and sit comfortably within the broader consensus range.

As noted previously, Macquarie’s long-term assumption is for US$1,350/t.

UBS raises its 2026 lithium carbonate equivalent (LCE) demand growth forecast to 21% from 16% after strong growth in global battery production and installations.

While larger average electric vehicle battery sizes and accelerating energy storage deployments continue to support demand, rising inventories are creating near-term uncertainty, prompting UBS to recently lower its short-term lithium price forecasts for 2026 and 2027 by -9% and -12%, respectively.

Nonetheless, pricing is forecast to peak near US$4,000/t in the first half of 2027.

Electric Vehicle demand

June showed signs of a sequential recovery in Chinese EV demand, Macquarie highlights, although year-to-date volumes remain down -14%.

Morgan Stanley notes battery electric EV sales rose 33% year-on-year and 11% month-on-month in June, reaching their highest monthly level since November 2025.

Macquarie explains domestic passenger EV sales in China are down -16.8% year-to-date, partly offset by a 40.2% increase in commercial EV sales, while exports remain strong, rising 120% to 2.36m vehicles.

EV demand is expected to strengthen further in July as new models are launched, while it’s thought the recent correction in lithium prices will help ease battery cost pressures in the second half of 2026.

Broker views

Ahead of PLS Group’s June quarter market update, Neutral-rated UBS (target $5.60) forecasts production of 195kt versus the consensus estimate of 215kt.

Following the recent approval of -$175m in pre-financial investment decision (FID) capital expenditure for the P2000 acceleration project at the company’s Pilgangoora operation, UBS expects the feasibility study (FS) to be released in the December quarter, with first ore targeted by mid-2029.

Macquarie (Outperform; target $6.25) highlights lithium price and currency volatility, project execution and global supply-demand shifts as the key risks for PLS Group, while identifying exploration success at Colina and Pilgangoora for potential upside.

Morgans lowers its target to $4.80 from $5.40 and upgrades to Hold from Trim, incorporating the proposed P2000 expansion, higher development spending and a lower valuation multiple.

It’s felt Pilbara’s net cash balance sheet supports the long-term growth plans.

The analysts at Morgan Stanley continue to prefer PLS Group over IGO Ltd, citing a more attractive valuation and greater long-term growth optionality.

The average target of seven daily covered brokers researching PLS Group in the FNArena database is $5.63, implying around 34% upside to the $4.19 closing price on July 20.

UBS expects little change in IGO Ltd‘s June quarter result, forecasting Greenbushes production of 371kt, in line with consensus, following little news since the fire inside the Chemical Grade Plant 3 (CGP3) in June.

While uncertainty remains over the impact on FY27, UBS remains positive on longer-term debottlenecking opportunities at Greenbushes, with installed capacity of around 2Mtpa, and the CGP4 expansion.

An optimised life-of-mine plan, expected in the September quarter, is viewed as the key catalyst. Unchanged Buy rating and $9.65 target.

Outperform-rated Macquarie (target $10.50) identifies movements in spot spodumene, lithium and nickel prices as the key risk to its earnings forecasts for IGO.

While favouring this company among lithium stocks under coverage, Macquarie highlights any variance in production, capital expenditure or operating costs across Nova, Forrestania, Greenbushes and the Kwinana Lithium Hydroxide Refinery could materially affect earnings and valuation.

The average target price for IGO Ltd in the FNArena database is $9.08 across five brokers, representing around 38% upside to the July 20 closing price of $6.60.

UBS forecasts Liontown (Buy; $2.50 target) will produce 99kt of SC5.2 spodumene concentrate from Kathleen Valley in the June quarter, around -14% below consensus of 116kt, although shipments are expected to recover following the March quarter, with sales forecast at 112kt.

UBS continues to view the ramp-up to 2.8Mtpa by June 2027, and ultimately 4.0Mtpa, as the key valuation driver, with an update on expansion expected in the September quarter.

Macquarie identifies lithium price volatility, mine ramp-up, underground execution and capital and operating cost outcomes as the key risks for Liontown. Outperform rating and $2.30 target.

This broker notes a -10% decline in lithium prices reduces Liontown’s valuation by around -14%.  

While not a perfect correlation, Macquarie believes the recent share price weakness is disproportionate to the company’s underlying fundamentals and may instead reflect weaker sentiment, slowing earnings momentum, systematic trading flows or a shift in longer-term market expectations.

Morgans upgrades Liontown to Accumulate from Trim and lowers its target to $1.70 from $2.20, reflecting higher capital expenditure for the planned Kathleen Valley expansion and a lower valuation multiple.

As this broker believes recent sector weakness is driven by near-term supply rather than demand, Liontown Resources is considered well placed as production ramps up and its balance sheet strengthens.

The average target of six brokers is $2.15, implying potential upside of 69% from Liontown Resources’ July 20 closing price of $1.27.

UBS’s recent initiation of Buy-rated Elevra Lithium ((ELV)) with a target of $12 highlights a fully funded and compelling growth story, with attributable lithium production forecast to more than triple, from 198kt in FY26 to around 620kt by FY36.

For details on the broker’s initiation and other broker views see https://fnarena.com/index.php/2026/07/20/elevra-lithium-building-platform-for-growth/

Macquarie (Outperform; target $14.50) identifies spodumene price movements as the key risk to internal earnings forecasts and valuation for Elevra.

Macquarie also highlights execution risk around the production ramp-up and brownfield expansion at the North American Lithium (NAL) operation as a key medium-term uncertainty.

The average target of UBS and Macquarie of $13.25 suggests nearly 62% upside to the $8.19 share price on July 20.

UBS views PMET Resources ((PMT)) as an attractive long-term investment, underpinned by the proposed low-cost Shaakichiuwaanaan project in Canada.

While project funding remains the key valuation driver, given the broker’s estimated capital cost of around -CAD$2bn, development continues to progress, with further exploration results and a broader preliminary economic assessment expected by the end of 2026 for the two principal lithium pegmatite deposits within the project.

UBS and Macquarie have Buy or equivalent ratings for PMET Resources and Bell Potter rates the shares a Speculative Buy. Their average target of 85.7 cents implies 99% upside to the current 43 cent share price.

Morgans lowers its target for Mineral Resources to $68 from $71 and retains an Accumulate rating, reflecting higher sustaining capital and depreciation forecasts across the mining services and lithium divisions.

This broker believes the company’s diversified earnings base provides greater resilience than pure-play lithium producers, while the planned sale of a 30% stake in Wodgina and Mt Marion should strengthen the balance sheet and support future growth.

Outperform-rated Macquarie and UBS (Buy) have respective targets of $85 and $79. The average target of six daily covered brokers is $77.40, suggesting around 42% upside to the $54.59 closing share price.

The largest implied upside (159% from the current 38c share price) to an average target of three brokers at 98 cents belongs to Wildcat Resources’ ((WC8)), alongside two Buy ratings and one Speculative Buy.

The company’s Tabba Tabba project is seen as one of few large-scale Australian developments capable of entering production during the current cycle.

For further details see https://fnarena.com/index.php/2026/06/17/lithium-enthusiasts-discover-wildcat-resources/

Share prices continue to struggle today under persistent selling pressure across the industry.

Paid subscribers can keep a close eye on ongoing changes and updates to target prices and ratings via The Australian Broker Call Report and Stock Analysis on the FNArena website.

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