Electric vehicle demand to drive windfall for lithium miners, say Macquarie and Barrenjoey
Analysts say a global shift towards electric vehicles and challenges in the supply chain are set to benefit lithium mining companies.
Lithium miners are set for an earnings windfall amid a growing demand for electric vehicles and significant supply challenges.
Barrenjoey has upgraded its lithium price forecasts by up to 86 per cent over 2023-24, with tight market conditions expected to continue into 2023.
Barrenjoey’s head of mining research Glyn Lawcock said it meant higher earnings and cashflow, which the market has not yet fully priced into equities.
Mr Lawcock said “more upside potential remains” in lithium stocks, with miners Mineral Resources and IGO the most preferred equities on valuation grounds.
Barrenjoey has raised IGO’s target price from $13.50 to $15.50 and Mineral Resources from $67.00 to $77.00.
Barrenjoey notes the lift in lithium price forecasts drives a 12-44 per cent upgrade to its FY23 earnings per share forecasts and 64-120 per cent jump in FY24.
“The key limiting factor to greater adoption remains the development of raw materials, particularly lithium,” Mr Lawcock said.
“We think the market expects a surge in supply in 2023, which we would expect to be more tilted towards year-end and into 2024.”
Electric vehicle sales globally continue to outpace combustion vehicle sales, with China up 117 per cent in the year to July and Europe up 32 per cent in the year to June.
Mr Lawcock acknowledged the market was concerned about “rapidly slowing global economic momentum and the impact on aggregate raw materials demand”, but tipped strong electric vehicle growth would drive demand.
“While lithium is not immune, we think that electric vehicles can grow sales in an otherwise contractionary or sluggish auto market,” he said.
Macquarie says prices are going from “strength to strength” as demand outstrips supply, with lithium carbonate edging 1 per cent higher week-on-week to US$69,400 ($100,936) per tonne.
Macquarie notes lithium carbonate supply remains tight in China due to logistic challenges caused by lockdowns and says its preference for Australian-based lithium producers remains unchanged with Pilbara Minerals and IGO its key picks.