Material Matters: Lithium, Rare Earths & Gold

Commodities | 11:15 AM

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.