It’s Monday so you’ll have to picture this – Wall Street on Friday morning. Although it’s a few days now, we’re still annoyed with UBS for taking an unnecessarily big pair of secateurs and trimming the hell out of their near-term lithium price forecasts.

China, they reckon, is being a right stick in the brine.

The near two-year record run on Chinese spot market battery-grade lithium carbonate prices is done. Headline spodumene and some of the spot chemical prices have already halved from their earlier peaks on demand which is softening like the French cheeses we take with our breakfast of champagne, coke and champions.

Never mind that the Swiss investment bank continues to see a growing lithium deficit gradually accumulating through this decade, so much so that long-term prices have been lifted across the board by a full 20%.

Because that upbeat nugget’s been eclipsed by what they also see as the current weakness in lithium demand, which has antsy UBS analysts slashing their forecasts by as much as 40%.


Lithium-related US stocks suck it up

So off they went and cut mid-term (2023 and 2024) earnings forecasts between 10 to 30%, while short-term lithium demand forecasts were slashed between 5 and 15%.

C’mon UBS. Wake up and smell the lithium hydroxide. Globally, demand for EVs is ramping up. Even Ford are making EVs for the love of god.

Nevertheless, from their unhelpful point of view, UBS says the market is now “more closely balanced”, with analysts expecting a pause until the deficit emerges later down the track.

This sentiment was also reinforced last week by UBS’ global EV/battery team’s 7th annual EV consumer survey which reported its first sequential decline in EV popularity, driven by cost worries in Europe – like they can’t afford a few EVs – anyway, that’s also led to downgrades across UBS’s near-term EV outlook.

So it’s a double whammy that’s led us back to Friday morning at the New York stock exchange and we’re now just a couple of hours from the shares in major lithium stocks we own crashing and burning like a Ford EV.

(Enjoy this newly released vision of a February battery fire to all-electric Ford F-150 pickup trucks in a Dearborn holding lot.)
Via Dearborn Police and Detroit Free Press

Albemarle (ALB) is about to lose 10%, Livent (LTHM) (a mere) –5.5%. While SQM (SQM) has no idea it’s going to enter the weekend down 19%.

These listed names all mine lithium in South America.


They’re not silly in Chile

Chile’s President Gabriel Boric is the reason these stocks are down.

He wants to nationalise the lithium sector over time with the state holding a controlling interest while partnering with lithium miners.

Also here’s a video of Latin America’s youngest president being encircled by a tiny kid in a superhero costume on a bike, while delivering a speech. And none of it seems odd.

Boric has a plan that will require state involvement in and control of any lithium contracts going forward from Friday.

It’s a decent plan and one which you’d have to admit you’d be in for if you happened to be the president of the country with the world’s largest lithium supply.

Boric says he’ll be sharing the riches from Chile’s mineral wealth more broadly among his fellow Chileans while also saying something about biodiversity and indigenous rights etc etc.

You may not know this, because you’re way over in Australia, but currently, the world’s largest lithium exporting country is Australia.

Chile is in 2nd place.

Right now only some 30% of the raw lithium materials about the place come out of Chile. Straya accounts for nearer 50%.

Certainly other punters – China, the Argey-bargies (Argentina), Brazil, and even god’s own natural kingdom in the US – have decent lithium reserves and production capacity, (and everyone is pouring in the cash to increase production).

But it’s perhaps Australian names which have the highest distance to fall should Chile – with the aid of money and expertise from China – go state-owned enterprise-y over lithium.


The lithium triangle

Chile is a veritable lithium feast.

The vastly impressive (but otherwise forbidding and pretty useless unless you’re a pink flamingo) Atacama desert is like a giant lithium factory of concentrated salt flats. The brine pools on these salt flats are said to be so rich in lithium that every year Elon Musk flies in on an unexplodeable rocket and spends a full day licking the ground.

Reaching across Bolivia and Argentina, the Atacama has been referred to as the “lithium triangle.” The area, they say, holds roughly half of the world’s lithium reserves.*

*Lithium resources are reasonably common, in fact they’re abundant. Take this nugget to bed: the total lithium content of our oceans is thought to be around 230 billion tonnes. (Ha. lithium deficit).

It’s just lithium is widely dispersed. So we get excited when there’s a lot in one place.

You may as well watch this. It pretty much made me the lithium expert I am today.

Lithium floats eh.

Now, if that looks alarmingly volatile, then you can bet traders will take the news of this Chilean business in similarly reactive fashion.

But Albemarle wants everyone to know existing contracts will be honoured.

“We will continue to collaborate with the government of Chile regarding the proposed national lithium strategy… We have many shared interests to include how best to grow the lithium market and deploy new sustainable technologies.

“Our current contract with the Chilean state is valid through 2043. We expect no material impact as the Chilean government made clear it will fully respect existing contracts.”

Because that relationship is tip top. Nevermind that Chile’s Environment Superintendence (SMA) is suing Albemarle for over-extracting brine at – wait for it – its Atacama salt flat operation.

Back to UBS.

In terms of stocks, UBS has a clear relative preference for:

1) IGO (ASX:IGO) (Buy)

2) Pilbara (ASX:PLS) (Buy, previously Neutral)

3) Mineral Resources (ASX:MIN) (Buy)

4) Allkem (ASX:AKE) (Buy) “given quality range and short-term stock-specific catalysts”.

Pilbara, BTW is “the most levered to falling lithium prices” however, with the stock down about one-third from all-time highs.

Thusly, UBS sees an emerging opportunity to re-enter PLS at such prices.