These invaluable insights which this morning fell off the back of a truck, reveal the very inner workings of quality thinking from the highly decorated UBS duo of lithium analysts Lachlan Shaw and Levi Spry.

But first a bit of a refresher. For me, mainly.

All my West Coast colleagues, drunk on the power of living in a land of endless resources that time has been trying to forget, grown weird and introverted from decades of isolation are all over these new battery metals. In Sydney we watch Rugby League.

Lithium demand it seems, is being driven – get it – by the booming global demand for nicely made, happily compact lithium-ion batteries.

These bad boys (or girls, I’m easy) are for the moment the single leading techno-solution for keeping then juice in the portable electronics and the electric vehicles, which have or should make our lives more frictionless and less all climate-changey.

Here in Australia, we supply circa 60% of the world’s lithium in the form of a mineral concentrate called spodumene (giggles). As you probs already know, the pyroxene mineral consisting of lithium aluminium inosilicate, (what I like to call LiAl(SiO₃)₂), is raw and real lithium-rich raw and once you’ve refined it (too hard basket, let China do it) spodders (giggle) ends up in your laptop, your phone, your Canon EOS DSLR (just kidding they don’t exist anymore) and your EV (just kidding we don’t have those yet).

With a lot more than just a cafe or two of ‘hard rock’ lithium out there, this very nation upon which we play beer and drink footy rightly turns its nose up at all the other lesser nations out there which can’t claim to have very much of anything useful in, on or under the hallowed ground.

Especially those that don’t have one of the largest lithium deposits globally, in the world.

From circa 2020, the going price for Australian (giggle) spodumene has gone 10 x. Tenfold. It’s a ten-bagger.

Last month, according to Benchmark Mineral Intelligence, LiAl(SiO₃)₂ was selling for US$5K a tonne.

By 2040 the International Energy Agency expects demand for lithium to grow more than 40 times this if the rest of you get off your butts and meet the goals set out at the Paris Agreement.

Lithium for Dummies:

  • So. EV batteries. They best be light, small, and fairly powerful.

  • Lithium is the most spiffium chemical for the job.

What is this guy on? Take me to the stocks bit NOW so I can get rich

  • You go and find your lithium in brine salars which are a little unearthly but particularly rich in lithium salts.

  • Your garden variety salar is found mainly on the plain in South America or China

  • But, should you want to go get some via good old conventional hard rock mining, then you’re in the right sunburnt country.

  • The slow development of a lithium chemical industry is happening here in Australia – the Kwanana IGO/Tianqi joint venture, Albemarle Kemerton project, which are both building and ramping capacity.

  • Brine-sourced lithium involves brine pumped out of the ground, evaporated, concentrated and then processed into a chemical lithium salt, of which there are different levels of purity. Battery manufacturers typically prefer highly pure, pharmaceutical-grade salt.

  • Of late, we’re seeing Argentinian brine producers favour a slightly lower-quality grade, which then gets processed elsewhere into ultra-high purity battery-grade lithium carbonate or lithium hydroxide.

  • Hard rock lithium is where lithium concentrate ore is mined, known as (tee hehe) spodumene.

  • Australia exports a ~6% concentrate ore (i.e. 94% is waste), shipped to China where it is processed into Lithium chemical (lithium hydroxide or lithium carbonate).

  • Lithium Hydroxide is used in nickel-rich batteries (dominated by Korea/Japan), lithium carbonate is used in lithium iron phosphate (LFP) batteries (dominated by China).

  • Nickel chemistries typically have 20-30% more energy density, so will send EVs further on a single charge. However, LFP chemistries are improving, e.g. TSLA model 3 in China with a LFP cell has 450km on a charge, which is now industry standard.


The UBS Outlook for Lithium:

UBS agrees lithium prices are ‘unsustainably high.’

That said, UBS remain very bullish in the medium to long-term.

And despite some short-term concerns around inventory build-up in China (noting the current ‘air pocket’ in demand could see prices weaken a little bit near-term), the thinking at UBS is we’re at the top of the market in terms of demand numbers (based on high EV penetration rates, ~50% by 2030) and also large average battery sizes.

UBS says this is a supply-constrained market, and both analysts expect it to remain ‘structurally undersupplied for the next couple of years.’


China is ramping up higher-cost supply projects, but UBS don’t reckon these are material enough to put the market into oversupply.

New discoveries and projects could help the supply side, but they’re all slow to market, which means by the time they get there, the market’s already heaps larger.

Speaking to EV research teams in Asia, the number one concern from car companies globally is supply of lithium chemical.

Auto OEMs all need more because they’re all playing catch up.

In the post is a very significant uplift in the number of models en route to market.

The shiny new US Inflation Reduction Act means subsidies are now in place to support the production and purchase of stateside EVs.

This has been a clear signal of support, as well as flagging a US mission to onshore the EV industry.

“This implies even stronger EV demand than otherwise, support for higher lithium prices for longer, plus the opportunity for the industry to move downstream and have US-based battery companies,” UBS says.

“These are trends that we will likely see around the globe, and Europe is already also considering its own version of the IRA.”

The overall picture – and again, despite a potential air pocket in China currently – UBS says the structural thematic is very much in play, and the view on demand is so strong that they struggle to see the supply-driven downside case that others in the market like Goldman Sachs have highlighted.

Stocks on the UBS watch:

Allkem AKE (Buy): Clear pathway to triple production by 2026. Resource base is world-scale, so UBS see it as well positioned to execute. UBS currently has long-term spodumene at $1,100, versus spot at $8,500, AKE is pricing <$1,000. Long-term Lithium carbonate at $15,000, versus spot at $82,000, AKE is pricing $13,000.

Mineral Resources MIN (Buy): Selling down of lithium assets now looks to be off the table, which is a good move given the industry outlook and given half the NPV is in lithium. Also offers iron ore business (5-10%), mining services business (40%).

IGO Limited IGO (Neutral): One of the highest quality ways to play the theme.

Pilbara Minerals PLS (Sell): Structurally lower margined, and in the long term the least preferred. Short term tough, it has the best leverage to elevated prices so it is generating a huge amount of cash.