Lithium prices have been tumbling since November 2022, with the carbonate variety used to manufacture electric vehicle (EV) batteries more than halving in value since its peak in November 2022.
The lithium carbonate price has sunk from about US$85,000 per tonne to about US$38,000 per tonne today. This is the lowest price in 15 months, according to Trading Economics data.
This has been caused by an increasing global supply and a recent temporary pullback in Chinese demand.
China is the world's largest EV manufacturer and the world's second-largest importer of lithium behind South Korea.
In late 2022, the Chinese government announced the impending end of subsidies for local lithium battery makers and EV manufacturers.
So they went into overdrive before the subsidies ended, creating a large inventory that slowed global demand for both lithium and batteries over the past few months.
But analysts are predicting a resurgence in the lithium price in the second half of 2023.
What's the outlook on the lithium price?
Citi resources analyst Kate McCutcheon says Chinese battery makers are now restocking supplies and demand is returning.
However, the outlook for the lithium price is varied.
Here's a sample of broker predictions about where the lithium price will go later in 2023 and into 2024.
- Citi — US$40,000
- Macquarie — US$57,500
- UBS — US$54,750
In the Australian Financial Review (AFR), McCutcheon said:
We don't think that [lithium] prices go back to the peaks, but we do expect prices to pick up from spot in the back end of this year, and moderate to $US40,000 a tonne for carbonate for next year.
Which ASX 200 lithium shares does Citi like best?
Citi ranks Pilbara Minerals Ltd (ASX: PLS) as its preferred buy-rated ASX lithium share.
McCutcheon said Pilbara Minerals was the "most leveraged" to the lithium price.
… so if I were to track spot prices to equity performance, Pilbara is the one that correlates most strongly, and it's delivering the highest free cashflow yield across my gold and base metals coverage.
Citi is neutral-rated on Mineral Resources Ltd (ASX: MIN), which produces both lithium and iron ore. She says the company's earnings are becoming increasingly weighted towards lithium.
Ain't that the truth. As we reported last month, Mineral Resources' lithium revenue in 1H FY23 came in at $997.2 million, up from $143 million a year earlier.
Citi rates Core Lithium Ltd (ASX: CXO) shares a sell.
McCutcheon explains:
They have to dewater their flooded open pit, so a likely production gap is a headwind, as are legacy contracts that they signed, one of which has a price ceiling.
ASX 200 lithium shares were on fire yesterday after a US giant made a takeover bid for a small local player.
Matthew Frydman, a senior research analyst at MST Financial, says despite falling lithium prices of late, "the medium-term outlook is still very favourable for Australia's established [lithium] producers".
