High Voltage: An ‘avalanche’ is laying waste to lithium prices, as predicted

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Each week our High Voltage column wraps all the news driving ASX battery metals stocks with exposure to lithium, cobalt, graphite, manganese and vanadium.

INDUSTRY FOCUS

Morgan Stanley copped criticism when it predicted that an avalanche of lithium supply would decimate prices back in February 2018.

Macquarie got similar treatment when it forecast a “tsunami of oversupply” in a note titled Lithium: Welcome to Thunderdome.

But here we are, as prophesied, with prices now at multi-year lows.

July another tough month for #lithium chemical producers, with global average prices down 8% for carbonate and 5% for hydroxide. Still up ~40% on pre-price spike but excess supply/lower-feedstock costs are likely to cause more pressure in the coming weeks @benchmarkmin pic.twitter.com/gCHeA0NnHX

— Andrew Miller (@amiller_bmi) August 5, 2019

WA spodumene producers are hurting as prices fall from over $US1000 ($1476) a tonne to well under $US600 a tonne.

Over the past 12 months, Pilbara Minerals (ASX:PLS) is down 48 per cent, Altura Mining (ASX:AJM) 67 per cent, Galaxy Resources (ASX:GXY) 48 per cent, and Alita Resources (ASX:A40) 75 per cent.

Alita is looking particularly shaky right now, and some are predicting it may become the first major casualty of a weakening market.

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But here’s the thing; while prices for lithium and cobalt products have continued to fall, “long term demand projections haven’t budged and are still very much intact”, writes lithium expert Chris Berry.

This is a sector-wide paradox that has only become more glaring over the past 12 months, he says.

Industry-specific factors are important, he says, but it’s clear that a convergence of macro “economic and geopolitical factors” — trade wars, Brexit, colossal debt piles — are spooking investors and delaying capital spending by companies.

These decisions certainly mean delays ramping up to meet that consensus 1 million tonnes a year of lithium carbonate equivalent (LCE) demand by 2025.

And let’s be clear; 1mtpa is still the consensus (sans Morgan Stanley, which is predicting 750,000tpa).

Albemarle recently confirmed as much, even as it put the kibosh on 125,000tpa of previously announced conversion capacity.

“The industry is clearly starved for capital and while it’s true that assets can get cheaper, the requirement for funding to electrify transport is needed now – not in 2025 or beyond,” Berry says.

“Any significant delay in capital allocation here almost assures a delay in more widespread EV uptake.”

SMALL CAP SPOTLIGHT

It was clearly a rough week for most stocks, and battery metals didn’t escape the bloodbath:

Ouch.

Here’s a table of ASX battery metal stocks with exposure to lithium, cobalt, graphite, manganese and vanadium>>>

Scroll or swipe to reveal table. Click headings to sort. Best viewed on a laptop:

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