Bank of America slashes lithium price forecasts
“Ultimately, the supply overhang is driven by upstream production – one reason why mined spodumene has underperformed the downstream chemicals. Factoring in the lack of production discipline, we reduce our price forecasts and see lithium cutting deeper into cost curves, up to the point when miners start exiting the market; timing somewhat uncertain.”
“Sspodumene remains the supply driver,” Mr Widmer said. “Many of these supply increases are coming through in Australia, where operators are increasing supply significantly.”
Mr Widmer said one key question is why suppliers have not cut production. “We believe there is a geopolitical component to this, with Western producers looking to take advantage of rising lithium demand as the US and Europe try to catch up with China’s battery and EV industry.
“Meanwhile, China has gone to great lengths building out its EV supply chain and also seems reluctant give up on recent progress.”
Mr Widmer said this “clash of interests has led to something of a stalemate: if China and World ex-China each support their industries, market balances may remain weaker for longer”.
“Beyond rising geopolitics competition, junior and mid-sized miners are also pushing into lithium, a recurring issue after every rally. This also reduces the incentive for the incumbents, especially those with lower cost, to reduce output, which would facilitating supply increases from competitors.”
Mr Widmer said one newer hurdle to clear is a slowing in demand for EVs. “Our US auto team also notes that sentiment on EVs soured in late 2023. Commentary from dealers and OEMs coincided with a stalling velocity of EV sales.
“Further investigation reveals a dichotomy in the EV market: the premium market has moved towards electrification while mass-market adoption lags. This divergence is mostly driven by pricing, but EV prices are unlikely to converge with ICEs in the near term.
“Therefore, our colleagues have lowered their EV adoption forecast, which essentially pushes penetration estimates forward by 1 year (2024 10 per cent versus prior 12 per cent, 2025 15 per cent versus prior 17 per cent, 2030 33 per cent versus prior 36 per cent), although there is still downside risk to that estimate.”
Mr Widmer however said all is far from lost, saying: “On further investigation, it seems there is a dichotomy in the EV market: the premium market has moved towards electrification while mass-market adoption lags. Don’t get us wrong: EV production keeps expanding, albeit at a slower pace, and in the end, it will not make a difference to lithium until markets rebalance. Eventual announcements of lithium production cuts will be key to a price rebound. Stay tuned!”
