Lithium prices and equities to rise from bottom by July, Canaccord Genuity says

Prices for lithium and the stocks of companies trying to mine it are poised to rebound by July although they’re unlikely to resume the boom times of two years ago, Canaccord Genuity analysts say.

The investment bank forecasts lithium to reach US$16,000 per tonne for chemicals and US$1,200 per tonne for spodumene concentrate in the year’s first six months compared to prices on Friday of US$15,009 a tonne for lithium carbonate and US$1,105 per tonne for spodumene.

The removal of high-cost supply from the market which limited production and deferred projects plus robust growth in demand from electric vehicle production are factors backing the assessment, the analysts wrote on Friday.

The report comes as lithium carbonate, a precursor to lithium hydroxide used in batteries, was down from about 170,000 yuan (US$23,658) in September and 80% lower than in 2022, according to Trading Economics.

The price drop has led some miners to cut production and costs. Core Lithium‘s (ASX: CXO) Finniss mine in Australia halted operations in January and significantly wrote down the value of its assets. The same month, Sayona Mining (ASX: SYA; US-OTC: SYAXF) launched a cost review of its North American Lithium operation in Quebec and laid off 14 staff.

“Mine closures and project deferrals (are) a classic bottom of the cycle signal,” Canaccord said.

‘Goldilocks zone’

Prices for the sector will enter a more sustainable “Goldilocks zone” denoting prices that aren’t too hot as to spur high-cost supply and not too cold as to cause supply disruption, such as less than US$1,000 per tonne of spodumene concentrate, Canaccord said. Current prices are well below levels enticing enough to support new projects. They must rise by at least 6% for the metal and 18% for lithium carbonate if projects are to be economical, the company said.

Prices from the end of last year and into this year were too low, which caused disruptions across Australian spodumene, African direct ore shipping and Chinese lepidolite operations, typically the most expensive lithium mines.

Canaccord wrote that it’s reasonable for spodumene to trade as high as US$1,800 per tonne, and for lithium chemicals such as carbonate to trade as high as US$25,000 per tonne before supply is turned back on.

“If lithium markets and supply chains are to mature, we believe pricing within a sustainable ‘Goldilocks zone’ would represent the best outcome for EV adoption and development of the supply chain,” the analysts wrote 

Canaccord estimates the market was in a minor surplus last year and now expects the same into 2025. It also sees the potential for surpluses to switch to deficits, leading to risks of higher prices. Material deficits are forecast to emerge in 2027.

Equity rally

Some optimism has returned to equities over the last month as reports of mine closures and project delays put  uncertainty over current and future supply, the investment bank said.

“We see reasons to be more optimistic towards lithium equities as pricing bottoms, with preferred exposures focused on incumbent producers and low capex, near-term development plays,” it said. “Equities appear to be leading the rally; however, spot chemical/spodumene prices are trading relatively flat and appear to be lagging.”

Canaccord says it’s more confident in its current view that lithium has bottomed than it was last May due to production prices for lithium carbonate equivalent recently falling across several producers. Those prices have made production from higher cost integrated Chinese lepidolite marginal.  

Chinese spot prices for lithium carbonate, hydroxide and concentrate have risen by 14%, 17% and 7%, respectively, since late January 2024, Canaccord said. Lithium carbonate has already risen higher than its late February level, when it sat at 96,843 yuan per tonne, its lowest level since the summer of 2021.