High Voltage: Why did lithium stocks get pounded yesterday, and should we be worried?
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Our High Voltage column wraps all the news driving ASX stocks with exposure to lithium, cobalt, graphite, nickel, rare earths, manganese, magnesium, and vanadium.
Lithium stocks were smashed yesterday after a couple of bearish analyst notes threatened to tap the brakes on the battery metal’s outstanding run in 2022.
Just days after lithium prices hit another all-time high, Credit Suisse said there were rumours that a major cathode producer in China was reducing production.
“Wuxi li carbonate futures have dropped 7% on speculation in China that a major cathode producer might have slashed production targets and some Chinese firms forecasting softening in the market later in 2023,” says CS analyst Saul Kavonic.
Then Goldman Sachs said a thing:
Here we go again, Goldman Sachs expects lithium supply to outpace demand from 2023 and the market completely overreacts. Feels like Déjà Vu – 1 June 2022. Hello… demand for lithium could grow to more than 40X current levels by 2040. GS are you ok? #ASX #LITHIUM #investing
— that stock chick (@ausstockchick) November 15, 2022
GS does it again 🤦♀️😄 pic.twitter.com/eeZR8sTuiN
— E Camp 🍀 (@ECamp1234) November 15, 2022
Meanwhile, JP Morgan said CATL – the biggest manufacturer of lithium-ion batteries for EVs in the world – was cutting battery production in November. That was the reason for the fall in lithium prices, it said.
But it also noted that battery production cuts in November in China are fairly common ahead of lower-than-usual EV sales in January.
“Battery production usually leads underlying EV sales by 1-2 months; hence it is a very common seasonal trend for battery makers to start reducing production output from November ahead of lower 1Q EV sales,” JP Morgan says.
“…several industry consulting firms such as ICCSino and ZE Consulting have indicated potential material procurement cuts in 2H-Nov.
“We view this as back to the seasonal trend we witness in 2019 or earlier years (but not in 2020-21 where CATL’s production did not take any Xmas break in Nov-Dec given the higher demand coming from not only domestic sales but also overseas share gains).”
JP Morgan have heard estimates of 30% production cuts this month, it says, which is less than the same period in 2019.
“While we need to verify the details, we note CATL cut its battery production by ~60% m/m in Nov-2019 (followed by another >40% cut in Dec-2019.
“This was followed by ~80% m/m decline in China monthly NEV sales run rate in Jan-Feb 2020 vs Dec-2019.”
So, is it bearish CATL are cutting production in November for the first time in two years? The market certainly seems to think so.
Larger stocks (miners and advanced project developers) both here and listed overseas were crushed.
CXO copped a double whammy of analyst pain after Macquarie downgraded the emerging miner to ‘neutral’ from outperform due to high executive turnover and increased risk of project delays.
“Core Lithium has announced the resignation of its CFO, and the company is undergoing the search for a replacement,” it said yesterday.
“This follows the exit of the Managing Director and CEO in October and of the COO in early 2022, making for high executive turnover in recent months.”
Coupled with weather impacts, senior management changes increase risk of project delays at the Finniss project, according to Macquarie.
“While the company continues to anticipate first spodumene production in the second half of FY23, Macquarie now assumes first production in FY24,” it says.
“The rating is downgraded to Neutral from Outperform and the target price decreases to $1.80 from $1.90.”
Here’s how a basket of ASX stocks with exposure to lithium, cobalt, graphite, nickel, rare earths, magnesium, manganese, and vanadium is performing>>>
Battery metals stocks missing from our list? Shoot a mail to [email protected].
Last week OD6 announced “some of the highest grades and thickest clay-hosted rare earth intersections seen in Australia”.
The first 65 holes of a completed 179-hole program at Splinter Rock in WA returned grades up to 6,729ppm total rare earths oxides (TREO) across four significant prospects, each 4-7km long and 10m-80m thick.
Assays contain large proportions of magnet rare earths, high value NdPr and heavy REEs.
“The extent and consistency of these shallow, high-grade clays have resulted in four significant prospects being identified that are between four and seven kilometres in width which are open in length, on our 2,579km2 Splinter Rock project,” OD6 managing director Brett Hazelden says.
“Importantly, these drill results validate historic assays, plus they extend the discovery of clay-hosted rare earths across a new drill line perpendicular to the original line.
“This bodes well for future drilling, which we anticipate will significantly grow the known mineralised area.”
Splinter Rock could be a world class asset, Hazelden says.
“The scale of these clays is hard to comprehend when you start talking multiple kilometres in one direction at a thickness of between 10 to 30m,” he says.
“The potential is massive.”
It’s also 1VG’s turn. The explorer says its ionic clay rare earths discovery at North Stanmore is “developing into a project of significant scale”.
The stock listed mid-2021 with a collection of 52 historic gold mines in the Cue region of WA, but soon diversified into lithium, IOCG (iron oxide copper gold) and rare earths exploration.
It completed the pivot to ‘mostly rare earths explorer’ after announcing a ‘high value critical rare earth element discovery’ at North Stanmore (also near Cue) in July this year.
New assay results from a recently completed 118-hole AC drill program confirm REE paydirt ~4km from this initial discovery.
Notable hits include 16m at 2155ppm TREO from 21m, including:
That’s high grade for a clay deposit, which is open in all directions. A new 10,000m drilling program will kick off “immediately”.