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High Voltage: Lithium prices and EV sales are up … Does this mean rock bottom’s been hit?

Lithium’s price woes might just be over at last, with a rebound in China and an uptick in electric vehicle sales leading to optimism in the market.

Rob Badman
5 min read
7:33AMOctober 19, 2023.
Updated 9:24AMOctober 19, 2023
Stockhead
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Looks like the EV market might be charging up again, which could drive up lithium prices. Picture: iStock
Looks like the EV market might be charging up again, which could drive up lithium prices. Picture: iStock

Stockhead’s High Voltage column wraps the news driving ASX stocks with exposure to lithium, cobalt, graphite, nickel, rare earths, manganese, magnesium, and vanadium.

There seem to be signs that the lithium price slide is over at last.

Fastmarkets sparked some optimism last week.

“China’s spot lithium carbonate prices rebounded in the week to Thursday, October 12 due to support from a surge in the lithium carbonate futures contract on Guangzhou Futures Exchange (GFEX), the first gain since the end of August,” it said.

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Just an aside here – there’s no accepted spot price market in lithium. Fastmarkets’ (and Benchmark’s) north Asia carbonate and hydroxide prices are relied on by Western producers as a reference point, but here’s another way to track them, too – Lithium Price Bot. (No, we’re not affiliated with its sponsor) …

That lithium carbonate price, per ton, in US dollars, is up about 2.3 per cent since Thursday last week. 

People are buying electric vehicles

The latest global electric vehicle (EV) sales reports are in and they show that sales ticked up by 50 per cent in Q3 of this year.

And yep, these are the kind of reports the battery metals sectors – hunters, producers and manufacturers – like.

According to figures released by the China Association of Automobile Manufacturers a handful of days ago, NEV (new energy vehicle) sales in September reached 904,000 units – a near 7 per cent increase from August’s high mark of 846,000 and a 28 per cent rise over 12 months from September 2022’s 708,000.

That’s China specifically, then, the world’s biggest EV market.

And the full, global picture?

Year on year, EV sales are up almost 50 per cent according to a report from Californian automotive research company Kelley Blue Book. And that includes encouraging signs for the US EV market, too, which has tended to lag behind Asia and Europe in adoption.

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Destocking and restocking

So then, EV growth data has a direct correlation to demand for lithium and other battery metals. Or, at least you’d think so wouldn’t you?

On the whole, EV sales have been rolling along okay all year, so why have so many lithium mining shares been down YTD?

Financial media outlet Barron’s posed this question in September, noting: “The easiest reason to cite for lithium stock weakness is falling commodity prices. Benchmark lithium prices are down roughly 67 per cent year over year, and near a 52-week low of about $24,000 a ton.”

But why have lithium prices been falling amid generally strong EV demand?

Barron’s cited Evercore ISI analyst Stephen Richardson, who recently noted: “It is hard to believe incremental supply is coming at what is likely closer to marginal cost today.

“For much of first-half 2023 destocking was the theme.”

Barron’s said that “destocking leads, eventually, to restocking, which means more buying by battery makers and EV companies. That just hasn’t happened yet.”

Not yet, no, still there are plenty who believe demand for EV batteries is going to significantly outstrip supply in the future.

Here are some quotes we’ve see around the traps from various other analysts recently:

  • “Even though lithium prices are coming down, M&A in the space is coming as larger scale companies with financial firepower will be needed to deliver supply” – Reg Spencer, analyst at Canaccord Genuity, per the Financial Times.
  • “Global lithium supply is expected to enter a deficit relative to demand by 2025.” – BMI, a Fitch Solutions research unit, per CNBC. It added: “We expect an average of 20.4 per cent year-on-year annual growth for China’s lithium demand for EVs alone over 2023-2032.”

Top 5 ASX lithium stocks YTD 

Azure Minerals (ASX:AZS): +231 per cent

Liontown Resources (ASX:LTR): +147 per cent

Patriot Battery Metals (ASX:PMT): +56 per cent

Pilbara Minerals (ASX:PLS): +35 per cent

Loyal Lithium (ASX:LLI): +24 per cent

Turning battery metal heads this week

LITHIUM POWER INTERNATIONAL (ASX:LPI)

“He who writes the cheque deserves the profit …”

As we reported on Wednesday it looks like the major Codelco takeover of LPI is all but a done deal, and it shapes as very fruitful one indeed for the company’s shareholders.

LPI has now confirmed it’s entered into a binding scheme implementation deed with Corporación Nacional del Cobre de Chile (Codelco). It’s a deal that will see Codelco acquire 100 per cent of LPI’s issued capital, valuing the company at approximately $385 million.

Codelco challenges America’s Freeport McMoran for the status as the world’s largest producer of copper, so this is big coup for LPI, which is massively down share-price-wise, from its ATH of 91c, which it hit in April 2022.

The company notes that “if the scheme is implemented”, LPI shareholders will receive $0.57 in cash per LPI share. And that represents a significant premium of 119 per cent compared to the undisturbed closing share price of $0.26 per share on September 26, 2023. It’s also a 136 per cent premium compared to the undisturbed 30-day volume weighted average price of $0.242 per LPI share.

We tuned into a shareholders’ webinar yesterday to hear what some of the LPI leadership group had to say, and the vibe seemed pretty upbeat.

Chairman David Hannon noted: “he who writes the cheque, deserves the profit”, explaining that the takeover deal represents a de-risking for shareholders amid turbulent economic times, including geopolitical backdrop and “lithium price risks”.

“These are high risk fields” to be operating in, he noted.

“It’s been a very long, thought-out process,” continued Hannon “and we weighed up all the pros and cons.

“We wholeheartedly believe this is a wonderful result for shareholders … and it’s probably time for the deep pockets of Codelco … to take the ball.”

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LIONTOWN RESOURCES (ASX:LTR)

A $300m raise? So say ‘sources’

Meanwhile, probably the biggest headline act in this sector just lately has been another takeover narrative, with decidedly more drama attached – the Albemarle v Hancock play for Liontown Resources.

As you may very well know by now, US chemical manufacturing giant Albemare walked away from its planned $6.6 billion takeover of WA lithium hunting gun Liontown amid Gina Rinehart’s Hancock Prospecting muscling in for a 19.9 per cent stake.

With Albemarle out of the picture, fundraising to ensure Liontown can complete its $951 million Kathleen Valley mine is now in full swing.

Stockhead’s Josh Chiat covers that perfectly here.

But further to that, there’s been a Wednesday update.

Per The Australian’s Bridget Carter: “Liontown Resources was understood to have been closing in on a raise at close to $300 million on Wednesday, with 19.9 per cent shareholder Gina Rinehart believed to be lining up as a participant.”

The report notes that investment bank UBS is working on the raise, adding:

“DataRoom understands that Liontown had been testing market appetite earlier in the week, first asking shareholders to buy stock at $2.50 per share, before winding the price back to $2.25 and then $2.

“As of Tuesday, there was talk that the price range was between $1.90 per share and $2.10 per share.

The thinking is that a price was likely at the lower end of that range, say sources, although some believe it could be even less – at $1.50 per share to appease hedge funds that need to close out their short selling positions.”

At the time of writing, LTR is under a trading halt, suspended until the start of trade on October 20.

This content first appeared on stockhead.com.au

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Original URL: https://www.theaustralian.com.au/business/stockhead/high-voltage-lithium-prices-and-ev-sales-are-up-does-this-mean-rock-bottoms-been-hit/news-story/bb07b2140ff44f9b56ebcb951205b0be