Miners power up as lithium prices hit new highs

Lithium prices will extend their record-breaking run, Macquarie Equities says, as it sharply upgraded its outlook to reflect strong electric vehicle sales volumes.

Macquarie Equities says strong demand for lithium, primarily from the electric vehicle market, has pushed spot lithium prices to record levels. Picture: Bloomberg

Lithium prices will extend their record-breaking run, Macquarie Equities says.

The broker sharply upgraded its lithium price outlook to reflect strong electric vehicle sales volumes and buoyant spot prices, triggering gains in ASX-listed lithium miners on Wednesday.

Macquarie boosted its earnings forecasts for lithium miners including Mineral Resources, IGO, Pilbara Minerals, Allkem and Liontown Resources, shares of which were among the best performers in the Australian market after a particularly strong year for the lithium sector.

Pilbara Minerals shares jumped 8.8 per cent on Wednesday, up 214 per cent for the year to date, after a brief dip on Tuesday after the lithium miner trimmed production and shipping forecasts.

Liontown Resources rose 4 per cent. Its 372 per cent year-to-date rise was the second-strongest in the ASX 200 share index.

Mineral Resources climbed 3.8 per cent and Allkem rose 2 per cent, extending their year-to-date gains to 39 per cent and 109 per cent respectively.

IGO rose 2.4 per cent and was up 72 per cent for the year to date.

Potentially touching off a fresh upgrade cycle in the sector, Macquarie Equities said strong demand for lithium, primarily from the EV market, had pushed spot lithium prices to records.

“We continue to expect prices to peak in mid-2022 but have upgraded our peak spodumene assumption by about 100 per cent to reflect the strength in prices,” the broker said.

Its calendar year 2022 forecasts for regional lithium prices were increased by 3-18 per cent, and its forecasts for three years beyond that by 12-22 per cent to reflect the higher peak.

It came as Rio Tinto snapped up Argentina’s biggest lithium mine for $US825m ($1.16bn) as the world’s No. 2 miner boosted its exposure to battery metals.

Rio’s acquisition of the Rincon Lithium Project demonstrated its confidence in the outlook for lithium and its commitment to grow its asset portfolio beyond the Jadar project, Macquarie’s Hayden Bairstow said.

He said the Rincon mine had the potential to produce 50,000 tonnes per annum of lithium carbonate for 40 years, lifting Rio’s long-term lithium carbonate production to 108ktpa.

In its report on the lithium outlook, Macquarie notes that production rates have increased over 2021, with solid increases from spodumene producers in Western Australia and rising production from South America. But the increase has failed to suppress spot lithium prices.

Macquarie’s global electric vehicle electric vehicle tracker reported strong growth in sales with sequential increases in battery electric vehicle sales in the US, China and Europe.

November sales implied penetration rates of 28 per cent for Europe, 20 per cent in China and 5 per cent in the US.

“Despite several new projects securing funding, we do not see material volume from new spodumene producers until calendar 2024,” Macquarie said.

“We now expect spodumene prices to remain elevated compared to carbonate and lift our calendar year 2022, 2023 and 2024 price forecasts by 71 per cent, 68 per cent and 47 per cent, respectively.

“We also adjust our long-term spodumene to carbonate ratio, which drives a 7 per cent lift in our longer-term price for spodumene to $US910 a tonne.”

Domestic Chinese lithium carbonate prices were trading at significant premiums to regional lithium carbonate prices, leading Macquarie to boost its calendar 2022 Chinese carbonate prices by 36-40 per cent and lift its 2023 and 2024 prices by 14-20 per cent.

Spot prices for key regional markets in Asia, South America, North America and Europe continued to lag behind movements in Chinese domestic prices, although the time lag appeared to be shortening.

“We now expect the peak for regional lithium prices to occur in the third quarter of calendar 2022, 3-6 months later than the peak in Chinese prices,” Macquarie said.

But peak prices outside China were expected to be 20 per cent lower than in China, largely due to the regional pricing lag. The broker’s base case assumes global lithium carbonate and hydroxide prices become aligned by calendar 2024 as spot price liquidity continues to improve.

Macquarie continued to prefer Pilbara Minerals for its spodumene exposure and Liontown Resources as a developer, while Mineral Resources remains one of its key sector picks.

Originally published as Miners power up as lithium prices hit new highs