Commodities | Jan 17 2025
Lithium prices are at or near their low point and equity valuations are no longer overstretched.
See also: https://fnarena.com/index.php/2025/01/13/the-lithium-transition-a-recap-of-2024-thoughts-on-2025/
-Lithium prices stabilise, equity valuations more reasonable
-Some analysts feel the lithium price is at or near a low
-December quarter result previews
-Lithium brine producers provide an alternative, notes Goldman
By Mark Woodruff
As December quarter operational results approach for ASX-listed lithium miners, analysts are releasing previews alongside in-house views on the outlook for lithium prices.
Morgans highlights current spot prices for Australian spodumene concentrate have stabilised and are now higher than those achieved in September 2024. Despite this, related equities have seen significant declines since that time.
For example, during the December quarter, share prices for Liontown Resources ((LTR)) and Pilbara Minerals ((PLS)) both fell by -33%, while IGO Ltd ((IGO)) shares experienced a -17% decline.
Canaccord Genuity explains average spodumene concentrate pricing fell by -3% quarter-on-quarter, with chemicals pricing declining between -4% and -13%, as demand concerns and oversupply continued to weigh on the market.
Since the end of September, spodumene prices have ranged between US$800/t and US$890/t, compared to lows of around US$730/t in August.
UBS now believes the lithium price has likely bottomed and Canaccord Genuity also expects a bottoming of the commodity through 2025 before pricing gradually improves into 2026.
Ahead of this anticipated recovery, Canaccord has lowered its near-term lithium price forecasts for spodumene and chemicals by -15% and -20%, respectively, contributing to falls in 12-month price targets for Liontown, Pilbara Minerals and IGO Ltd of respectively -25%, -8%, and -7% to 60 cents, $3.60, and $4.30.
UBS recently made small upgrades to its 2025/26 spodumene pricing forecasts.
Having been underweight the sector for more than 18 months, this broker feels equity valuations are no longer stretched.
In contrast, Goldman Sachs expects without a substantial and unexpected surge in demand, lithium market softness will continue in 2025, with existing producers likely to focus on further cost/production optimisations.
Headwinds from lithium supply
While acknowledging better value on the share market, UBS and Goldman Sachs remain cautious about the potential for significant upside in lithium prices.
UBS sees only a limited likelihood of an immediate price spike while latent capacity persists.
Ahead of more supply cuts rebalancing the market, equities already look to be pricing a rapid improvement in prices, according to the analysts, who remain largely Sell-rated the sector.
Goldman continues to expect lithium prices will remain weak on a 12-month view, despite Australian lithium names increasingly trading on more in-line longer-term multiples, after an extended period of disparity.
In explaining latent capacity, UBS points to mines on care and maintenance such as Contemporary Amperex Technology Co Limited's (CATL) Jianxiawo, Pilbara Minerals' Ngungaju, and the Bald Hill operations at Mineral Resources ((MIN)).
Canaccord believes the lithium market remains well supplied and while announced cuts will help the balance later in 2025, there is still supply being added to the market.
In such a range-bound pricing environment, this broker expects the focus will be on an individual company's medium- to long-term growth plans and management's ability to fund them.
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