Material Matters: Lithium, Rare Earths & Gold

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This story features PLS GROUP LIMITED, and other companies.
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A glance through the latest expert views and predictions about commodities: Boost to lithium demand; rare earths and selective floor pricing; global steel production; mid-tier gold picks.

• Energy Storage Systems' demand boosts lithium pricing
• Jury is out on selective floor pricing benefits for rare earths
• Emerging Asia? ex-China the saviour for global steel?
• Barenjoey’s mid-tier gold producer picks

By Mark Woodruff

Impacts of Energy Storage Systems on lithium pricing

Canaccord Genuity believes the improving outlook for the lithium sector should continue to underpin equity performance and recommends investors reassess their exposure accordingly.

Having seen the trough for both spodumene and lithium chemicals prices in late June, and with Battery Energy Storage Systems (BESS) demand now outperforming expectations, the analysts believe the lithium market has shifted decisively into a fresh up-cycle.

The price of 6% lithium oxide spodumene concentrate (SC6) has increased 19% this month to US$1,155, driven by interest from the energy storage sector, Citi explains.

Canaccord also points to the restart of concentrate auctions by spodumene producers, interpreting this as evidence of strong inbound buying interest and possibly ongoing suspensions across Chinese lepidolite operations.

After updating its price deck and implementing model revisions, Canaccord’s price targets for lithium producers under research coverage have risen by circa 25% on average.

Morgan Stanley shares Canaccord’s optimism on lithium, noting demand for Energy Storage Systems (ESS) is accelerating in 2025 and shows no sign of slowing into 2026. ESS refers to battery-based units which store electricity, often from renewables, for use at a later time.

The market is overwhelmingly dominated by lithium iron phosphate (LFP) technology, which holds more than 90% share, notes the broker. Leading systems are now capable of delivering up to eight hours of storage.

This momentum is not only positive for lithium but also for aluminium and copper, explain the analysts, with all three commodities now facing tighter markets in the year ahead.

ESS shipments are already running ahead of installations as the market scales rapidly, helped by surging AI-driven electricity demand, rising renewable penetration, and evolving policy settings in China.

A Chinese policy change in June, which removed the mandate for new solar and wind projects to include battery storage, was expected to reduce BESS orders in the second half, yet orders have surged.

UBS explains the rapid emergence of intraday power-price spreads, driven by early market-based pricing reforms and a growing share of variable renewables, is encouraging BESS deployment to arbitrage these spreads.

Morgan Stanley now assumes 30% of new solar capacity added in China in 2025 will be paired with ESS, rising to 40% by 2030 from 20% in 2023.

This broker, however, questions the durability of current spot prices once idled supply returns and the demand pulled forward in EVs (ahead of expiring U.S. policy) and ESS (due to U.S. tariffs and inventory build-ups) unwinds.

Morgan Stanley analysts also flag uncertainty over China’s plan to scale back EV subsidies in 2026, noting EVs are no longer a strategic priority in Beijing’s five-year plan, which could temper production and, in turn, lithium demand.

UBS observes momentum is also accelerating outside China, with Europe showing strong growth in project pipelines and order books across Germany, Spain and the Middle East, as well as in Australia and –believe it or not– the US.

Regarding the US, the broker explains ESS uptake is being propelled by rising AI-related electricity demand and the broader expansion of renewable generation.

Chinese BESS suppliers have been shipping heavily into the US ahead of Foreign Entity of Concern rule changes next year.

Also, with AI hyperscalers seeking new sources of power, it’s noted many US states now view solar plus BESS or standalone BESS as the fastest route to adding new generation capacity.

Arguing faster demand growth brings forward the return to deficit conditions, Canaccord has lifted its lithium price forecasts by an average 38% for lithium chemicals and 73% for SC6 across 2026–29, incorporating expected cycle peaks in 2027 of US$25,000/t for chemicals and US$2,250/t for SC6.

More than 330GWh of BESS capacity is now expected to be installed in 2025, a 220% upgrade on prior estimate.

Canaccord research suggests annual BESS additions could approach 800GWh by the 2030s, underpinned by a -43% decline in lithium-ion battery costs since 2022 and a rapid expansion of renewable-energy capacity.

Government incentives, along with growing needs for grid optimisation, system stability and backup power for AI-driven data centres, are expected to reinforce this growth.

Although the broker’s EV sales growth forecasts have been trimmed, BESS is now expected to account for an average 23% of total LCE demand, compared with 62% from EVs.

This lifts Canaccord’s total demand forecasts by roughly 8% per annum to 3.1mt LCE by 2035, more than double 2025 levels.

Canaccord reiterates its positive stance on the ASX Lithium sector, highlighting sector leaders such as Pilbara Minerals ((PLS)) alongside undervalued producers offering operating leverage or production ramp-ups, such as Elevra Lithium ((ELV)).

The broker also likes emerging producers and project developers Core Lithium ((CXO)), Galan Lithium ((GLN)), ioneer ((INR)), and PMET Resources ((PMT)).

Citi prefers IGO Ltd ((IGO)) and Pilbara Minerals over Liontown Resources ((LTR)) under this broker’s long-term SC6 assumption of US$1,400/t.

Citi favours IGO Ltd in the base case and Pilbara Minerals in an up-cycle, due to the latter’s potential to expand production via the P2000 project and Ngungaju plant within the overall Pilgangoora lithium operation in Western Australia.

IGO is thought to be most resilient in case of a weakening in lithium pricing, being the lowest-cost producer, while Liontown shows the greatest leverage to small SC6 price increases due to its higher cost base, the broker explains.

Rare Earth Element sector

The analyst at Argonaut has lifted rare earth element price forecasts, assuming linear gains to 2030, cautioning floor-price arrangements will not aid non-participants.

It’s thought heavy rare earths dysprosium and terbium will ultimately outperform neodymium and praseodymium.

The broker’s price targets for Iluka Resources ((ILU)), Brazilian Rare Earths ((BRE)), Meteoric Resources ((MEI)), and Northern Minerals ((NTU)) are trimmed slightly, while targets for Lynas Rare Earths ((LYC)) and Brazilian Critical Minerals ((BCM)) remain unchanged.

Selective floor pricing benefits direct recipients such as US-based MP Materials but works against building a genuinely competitive industry, opines the analyst.

Without a high-quality project, the broker believes a developer is unlikely to reach the scale or cost base needed to compete with entrenched Chinese producers, whose rare earth industry remains years ahead of the west.

It’s felt meaningful progress will require the US and its allies to commit to long-term, strategic industry support beyond short political cycles.

By engaging proactively with both Chinese and non-Chinese partners, Malaysia is positioning itself as a potential regional hub across the rare earth supply chain, in a way that mirrors Indonesia’s emergence in nickel, Argonaut highlights.

Given the value premium over mineral concentrate and mixed rare earth carbonate (MREC), many developers aim to produce oxides to maximise revenue.

In practice, achieving reliable oxide output is far more difficult. The broker explains Lynas took seven years for its Malaysian separation plant to exceed 85% of nameplate capacity, while MP Materials has reached only about 45% two years after commissioning in 2023.

This track record suggests to Argonaut new entrants such as Iluka Resources with its Eneabba facility will face a challenging ramp-up.

UBS highlights rare earth permanent magnet demand remains strong, with traditional uses growing below 10% per annum and newer segments such as EVs and robotics rising above 30% per annum, driving total demand growth of 10-12% per annum.

China continues to export magnets under existing quota and licensing processes. The broker believes decoupling will take time given technical barriers and the long runway incumbents needed to reach current capability.

Regarding humanoid robots, the broker is bullish, noting rapid gains in functionality and cost declines, with each unit typically using 2.5-4.5kg of magnets.

Steel production: developed vs developing economies

Since the global financial crisis, steel production in developing markets ex-China has grown 2.3% per year, or 40% over the period, while output in developed economies has fallen -2.2% per year (-30%), analysts at Citi highlight.

Africa, Latin America and the former CIS have been weak, while Emerging Asia (India, Vietnam, Korea) and the Middle East (notably Iran) have expanded at 5.8% a year and now account for nearly one-third of ex-China steel production, up from 14% in 2007.

The combined region is approaching the scale China reached in 2004

If this pace continues, Citi forecasts the region could add more than 500mt of steel demand over the next two decades, potentially offsetting a halving of Chinese demand.

In the first half of 2025, the region’s output rose 4% year-on-year, or 6mt, offsetting around half of China’s -12mt decline.

UBS expects crude steel output is expected to be flat to slightly lower next year, with direct exports outperforming thanks to strong demand in the ASEAN region, India, and Belt & Road markets, along with China’s cost advantage and its ability to absorb anti-dumping measures.

Indirect exports remain firm as China diversifies trade and moves up the value chain, while domestic demand continues to soften with weaker property construction, UBS explains.

Iron ore supply is viewed as balanced, with Simandou’s impact anticipated to remain modest through 2026.

UBS’s industry contacts see iron ore averaging about US$95/t in 2026, underpinned by broadly resilient steel demand.

Most of the broker’s contacts expect Simandou shipments of 30-60mt in 2026, with heavy wet-season variability, and anticipate iron ore easing around -US$10-15/t from current levels but not collapsing into a sustained US$70-80/t range, given cost-curve support and ongoing demand growth in ASEAN, India and Belt & Road regions.

The analysts explain India’s net exports are falling as low-grade miners need more than US$100/t, China’s domestic ore is flat to down as grades decline, and state-backed China Mineral Resources Group is seen largely as another trader helping dampen price volatility.

Barrenjoey on mid-tier gold producers

Barrenjoey reviewed emerging mid-tier gold producers listed on the ASX delivering under 200koz a year, across a number of valuation metrics and with regard to company guidance.

Catalyst Metals ((CYL)), Black Cat Syndicate ((BC8)), and the merged Predictive Discovery ((PDI))/Robex Resources ((RXR)) group (closing in the next few months) stand out for production growth and cash generation, suggest the analysts, while Alkane Resources ((ALK)) screens as the cheapest over a three-year horizon.

Catalyst’s growth outlook is supported by existing processing infrastructure, explains the broker, with delivery dependent on sustaining remnant mining at Plutonic and advancing new ore sources at Plutonic East, K2, Trident and Old Highway.

Black Cat screens most attractively on EV/Production multiples, with plans to lift output to 200koz via the ramp-up of Kal East and Paulsons and the restart of Coyote, without major processing investment.

The West African discount is evident for both the combined Predictive Discover/Robex group and Orezone Gold ((ORE)).

The funding logic is clear for the merged entity, explains the broker, pairing a near-term cash-generative asset producing 193koz in 2026 with a project needing -US$463m in pre-production capex helps unlock the value of the combined Reserves.

Orezone stands out with FY26 output of 170-185koz and its stage-2 expansion toward a 235koz target already progressing for first production in the fourth quarter of 2026.

Still, Burkina Faso’s push for a larger stake in West African Resources’ ((WAF)) Kiaka project suggests to Barrenjoey markets may continue to apply a heavy cost-of-capital penalty to assets in the region.

The broker explains Alkane Resources ranks best on cash generation relative to EV, with EV/EBITDA dropping to 1.7x in FY28 from 2.5x in FY26 and a 23% free cash flow (FCF) yield.

Costerfield’s short mine life is seen as weighing on sentiment, but remains a minority of FY26 output, with Tomingley and Bjorkdal offering deeper Reserve lives.

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