Shortfalls in China have kicked lithium stocks off with a bang in 2022
Beaten and battered ahead of the pandemic, lithium stocks were among the hottest on the market in 2021, a trend set to continue this year.
Lithium prices hit new records at the end of the year as Chinese battery makers stocked up ahead of its New Year festivities in February, analysts say, putting a rocket beneath the shares of Australian lithium producers.
Chinese lithium carbonate prices surged through $US40,000 a tonne at the end of 2021, according to prices provided by research firm Benchmark Mineral Intelligence, breaking the mark for the first time.
“This latest assessment represents a huge 25 per cent month on month increase in Chinese carbonate prices – driven primarily by strong demand from the electric vehicle battery sector throughout 2021, compounded by seasonal restocking of lithium carbonate inventories ahead of Spring Festival 2022 in China,” Benchmark said on Wednesday.
“The midpoint of the assessment for this specific grade settled at $US39,250/tonne, up 485.8 per cent on prices a year prior,” it said.
“Meanwhile lithium carbonate producer inventories have been depleted on continued high demand and remain at low to non-existent levels.”
And, in good news for Australian lithium miners about to send concentrate shipments to the world’s biggest market, the price benchmarking firm said stockpiles of raw materials at China’s lithium refineries were at critical levels.
“Upstream spodumene feedstock stockpiles have been reduced from an average of six months of material, to only one to two months,” Benchmark said.
The research firm did not publish its December price for Australian lithium concentrate grading 6 per cent, but assessed pricing at about $US1525 a tonne in November – more than triple its value at the same time in 2020.
Industry sources say Australian lithium miners have been besieged by queries from downstream producers over the last month looking to secure spot cargoes of concentrate, with premium prices on offer.
The price surge has helped ensure a stellar start to the year for ASX-listed miners.
A raft of lithium producers and hopefuls hit all-time price highs on Wednesday, including Pilbara Minerals, IGO, Neometals, AVZ Minerals and Global Lithium Resources.
The run confirms lithium stocks as the hottest property on the market early in the new year, amid speculation last year’s $8bn merger and acquisition rush could continue in 2022 as mining majors scramble to take positions in the booming lithium market.
In the week before Christmas Rio Tinto said it would pay $US825m for the Rincon lithium project in South America, and Prospect Resources announced the sale of its Arcadia project in Zimbabwe to China’s Zhejiang Huayou Cobalt for $US377m.
Bank of America analyst Jack Gabb said in a December report that a “scramble for resources” was afoot among the mining majors looking to increase their presence in the battery metals space, with average prices paid for lithium reserves in corporate transactions doubling over four years.
This week the heads of investment giant Blackstone’s Wealth Solutions group, Byron Wien and Joe Zidle, nominated a shortage of lithium batteries in their annual “10 surprises” looming in 2022, saying supply shortages in China could put the decarbonisation of the US economy at risk.
“In a setback to its green energy program, the US finds it cannot buy enough lithium batteries to power the electric vehicles planned for production. China controls the lithium market, as well as the markets for the cobalt and nickel used in making the transmission rods, and it opts to reserve most of the supply of these commodities for domestic use,” Mr Wein said.
Benchmark Minerals noted Chinese battery makers were now paying far more than overseas competitors for lithium carbonate.
Its global weighted average lithium carbonate price finished the year more than 30 per cent below the prices paid in China, at $US27,327 a tonne – showing “ the aggressive nature of price increases within China”.