Monsters of Rock: Don’t sweat the small stuff, unless you’re a lithium investor
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Lithium equities are tempestuous beasts, driven by rumour and innuendo like the early days of a political coup.
After a year of outsized gains, which have seen supply shortages and massive increases in EV production send chemical prices to unforeseen levels in excess of US$80,000/t, nerves are starting to show.
Today’s collapse ranged from 10.77% for market bellwether Pilbara Minerals (ASX:PLS) to ~4-5% for fellow majors Mineral Resources (ASX:MIN), Allkem (ASX:AKE) and IGO (ASX:IGO), to a range of drops above 6.5% for smaller capped Core Lithium (ASX:CXO), Liontown Resources (ASX:LTR) and Sayona Mining (ASX:SYA).
Global Lithium (ASX:GL1) must have felt aggrieved after announcing a 148.5% increase in its WA hard rock resource at the Manna and Marble Bar projects on this, of all, days – down 2% after a morning run.
So what’s happened?
Number 1: PLS held its latest Battery Material Exchange auction, selling 10,000dmt of 5.5% Li2O spodumene concentrate to China at US$7552/dmt, US$8299/dmt on a 6% basis.
US$75 million ($110m) for a single cargo sounds pretty righteous.
The only issue is the last BMX auction price was 3% higher. Oh, the despair (the top has been called).
We’re sure Dale Henderson is hardly crying into his tea about the sale, which remains way above normal contract prices, but …
Number 2: Citi analysts reckon it may mean pricing on the auctions has peaked. Not really a surprise given how extraordinarily high (and still very profitable) lithium prices are.
It is thought China, which has driven the run in the lithium market as the world’s leading chemical producer and EV maker, may be slowing. Citi thinks there is 20% downside to the lithium carbonate price in 2023, but has lifted its forecasts by 50% to US$60,000/t.
Number 3: Prices in China are actually slowing a bit.
Benchmark Lithium Prices slightly down; tick down not a collapse is expected as demand mood within China changes due to covid, currency, EV subsidy cut @benchmarkmin
Doesn’t mean a major swing in prices but cools v strong 2022 where lithium prices rose & remained at record highs pic.twitter.com/M5A0mo4cMH
— Simon Moores (@sdmoores) December 14, 2022
This one from the watchful eye of Simon Moores, head of pricing agency Benchmark Minerals Intelligence. Just a tick down, he notes, not a collapse.
That led the materials sector to a pretty ordinary day, down 1.4%, though the Fed’s hawkish 50bps rate rise had a big impact too.
Bullion fell 0.9% today to ~US$1791/oz.
Iron ore miners dithered either side of the breakeven point with Fortescue (ASX:FMG) up 0.1%. Singapore futures were up slightly to US$109/t.