Lithium upgrades on ‘bullish’ EV demand

14 April 2021 00:36
An electric car charges at a EV charge station

The lithium market is tipped to move into into deficit in 2022 amid strong demand powered by the ongoing rise of electric vehicles, which are forecast to make up 16 per cent of global auto sales by 2025.

As lithium stocks trade around three-year highs, Macquarie Securities this week upgraded its lithium price forecasts by 30-100 per cent for calendar year 2021 to calendar year 2025 on the back of the broker’s “bullish” expectations for EV demand.

“Our base case now assumes global EV demand growth of 42 per cent compound annual growth rate over the next five years, which translates into market penetration of 16 per cent by 2025,” the broker said. “China remains the key growth driver, with domestic market penetration of 21 per cent of total car sales by 2025 and 41 per cent by 2030, higher than our global penetration estimates of 33 per cent by 2030.”

After a tough few years, the lithium industry has been riding high in the past six months as prices respond to improving supply and demand dynamics. Unlike in the past, Macquarie’s analysts said the supply response to surging demand was likely to “disappoint” following extreme price volatility in the past two years for hard rock producers, leading to a “more disciplined approach to the current market”.

“Integration of existing spodumene capacity downstream is also likely to suppress the supply response. We also believe COVID-19-related restrictions are likely to delay lithium brine capacity expansions in South America,” the analysts added.

The upbeat outlook saw the broker resume coverage on Pilbara Minerals at outperform and upgrade Orocobre to outperform. Fellow miner Galaxy Resources was also upped to outperform. The analysts said the upgrades also enhanced their view on Mineral Resources, one of their “key picks” in the resources sector.

“Incorporating the stronger demand outlook, largely driven by rising global electric vehicle sales, combined with limitations on the supply response due to rising product-quality requirements, is expected to see the lithium market shifting to a deficit in 2022 and remaining tight for 2023 through to 2025,” the broker said.

“Rising electric-vehicle demand is expected to result in material deficits emerging from 2025. Given the size of the deficits, we expect lithium prices to remain at or above incentive pricing, which we estimate is US$720 a tonne for spodumene, US$13,000 a tonne for lithium carbonate and US$16,000 a tonne for lithium hydroxide.”


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