Lithium price recovery hinges on battery storage boom amid conflicting bank forecasts

Lithium stocks have rocketed after years in the doldrums, but the euphoria could face a harsh reality check from emerging sodium-ion technology threatening to steal market share.

For Australian lithium producers, the upgrades translate to dramatically improved earnings outlooks. Picture: Cameron England

Australian lithium miners finally have something to smile about as their share prices have seen massive rebounds in recent months following a couple of years in the doldrums.

The big question now is whether they have run too far ahead of the underlying lithium prices.

UBS and Macquarie have both upgraded their lithium price forecasts substantially, though they differ sharply on timing and magnitude. The divergence reflects the uncertainty around how quickly battery energy storage systems can absorb supply and drive meaningful deficits.

UBS has delivered the most dramatic reversal. After maintaining a bearish stance for two years, the bank has lifted its 2027 price forecast to US$2850 ($4291) per tonne from just US$1150 – a 148 per cent upgrade suggesting spot prices, currently around US$1170, could more than double.

“Following a two-year bearish stance on lithium, we shifted to neutral in August,” UBS analyst Levi Spry says. “We have materially increased our short to mid-term lithium price deck following an 11 per cent increase in lithium demand driven by battery energy storage systems.”

UBS now expects battery storage to account for about 31 per cent of total battery demand by 2030, up from roughly 20 per cent currently, representing about 1.2 terawatt hours of storage capacity.

Macquarie takes a more measured approach. The bank lifted its 2026 forecast by 15 per cent to US$929 per tonne and raised its long-term price by nine per cent to US$1200 per tonne – about 15 per cent above consensus. Energy storage demand has nearly doubled in Macquarie’s models, from 494,000 tonnes to 843,000 tonnes of lithium carbonate equivalent.

However, Citi offers a reality check.

Global head of commodities research Max Layton warns that medium-term prospects depend on bullish battery storage outlooks materialising, while near-term gains face headwinds.

“Strong order flow from energy storage cells, front-loading of electric vehicle demand and related bullish sentiment has lifted lithium prices over the past month,” Layton says.

“However, the pace of rally has garnered significant speculative interest which led to trading restrictions, resulting in a roughly nine per cent pullback in prices.”

UBS now expects battery storage to account for about 31 per cent of total battery demand by 2030.

Citi expects 85,000 to 100,000 tonnes per annum of lithium carbonate equivalent output can be brought online within six to eight weeks if prices rise further, limiting upside. Producers are likely to lock in higher prices through futures markets, capping rallies.

Layton also highlights competitive threats from sodium-ion technology, which can gain market share faster with rising lithium prices. CATL’s Naxtra sodium-ion cells, slated for mass production next year, have passed Chinese regulatory standards and could be deployed across small passenger electric vehicles and certain energy storage segments, cannibalising lithium demand.

The timing gap between UBS and Macquarie is significant. UBS sees lithium markets moving into deficit from 2026, with peak prices in 2027. Macquarie expects the inflection point in 2029, with its 2027 forecast sitting at just US$1033 per tonne – barely a third of UBS’s projection.

Both banks, however, converge on a long-term price of US$1200 per tonne in real terms, suggesting any spike will eventually revert to incentive-based pricing. The divergence reflects different assumptions about supply responses and the pace of storage deployment.

For Australian lithium producers, the upgrades translate to dramatically improved earnings outlooks. UBS revised earnings for pure-play lithium companies by more than 100 per cent for fiscal 2027 and 2028, forecasting free cash flow yields of up to 18 per cent.

The bank upgraded IGO and PLS to neutral from sell, and Liontown Resources and Mineral Resources to buy from sell and neutral respectively. New price targets include $7.20 for IGO, $4.00 for PLS, and $1.80 for Liontown – representing increases of 38 per cent, 67 per cent, and 125 per cent.

Macquarie maintained IGO as its key lithium pick while upgrading Mineral Resources from underperform to neutral. The bank noted IGO retains strong leverage to lithium prices despite near-term operational adjustments at its Greenbushes joint venture.

The improved outlook allows growth projects deferred during the downturn to be revived. UBS expects Liontown’s expansion from 2.8 million tonnes per annum to four million tonnes to proceed, along with PLS’s P2000 project and IGO’s CGP4 expansion.

Both banks caution against excessive optimism. The last upcycle saw spodumene prices surge 15-fold from US$500 per tonne to US$8000 between March 2020 and August 2023. UBS expects this cycle to be shorter and less exponential as the industry matures, forecasting a five-fold increase from cyclical lows to a peak of US$3100 per tonne.

Still, lithium stocks have responded strongly. PLS, Liontown and IGO are already up about 270 per cent on their 2025 lows while MinRes is up about 125 per cent.

The central question is whether battery storage can deliver on its promise. Energy storage is critical for integrating renewable power into electricity grids, smoothing out solar and wind intermittency. Government subsidies in key markets including Australia are accelerating deployment.

If the banks are right, Australian lithium miners could enter a period of strong cash generation after one of the sector’s toughest downturns. But with spot prices still 15 to 20 per cent below Macquarie’s 2026 forecast and well below UBS’s projections, the market clearly harbours doubts about how quickly the recovery will materialise.

Originally published as Lithium price recovery hinges on battery storage boom amid conflicting bank forecasts