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Mining
Predictions commodities and metals would benefit from China’s reopening have come to fruition so far in 2023, with lithium miners back near all time highs and materials sector up 1.26% today to a monthly gain of almost 10%.
Singapore iron ore prices were down slightly to US$125.05/t, with most iron ore producers in broadly positive territory.
But it was the lithium large caps who really moved the needle.
Mineral Resources (ASX:MIN), which dabbles in both markets as well as mining services and gas, hit an all time high of $96.15 today, giving it a market cap of $18.25 billion.
Pilbara Minerals (ASX:PLS), Allkem (ASX:AKE) and IGO (ASX:IGO) all ran higher, with $15 billion PLS cracking the $5 mark for the first time since a broker-led dip in lithium sentiment in November.
This time it’s a broker who is in the corner of ASX lithium stocks, with UBS analysts led by Lachlan Shaw upgrading spodumene and chemical prices by up to 50% over its forward estimates.
UBS has upgraded PLS to neutral from a sell, with a 38% lift in price target from $3.40 to $4.70, and lifted both IGO and MinRes to buys from neutral ratings ($19.90 and $118 PT), with Allkem maintaining its buy rating with its price target ratcheted up from $17.50 to $19.10.
Shaw and Co. say China’s reopening is bullish for consumption, with Wuxi lithium carbonate prices, which prompted a big drop in lithium stocks in December after posting their first fall in months, back up with the May contract 10% higher year to date.
“Lithium markets and equities have traded in anticipation of a demand ‘air pocket’ whereby supply would catch up to slower demand in Europe and China,” they wrote.
“But with rapid COVID reopening in China and growing expectations for a sales rebound post Chinese New Year, we refresh our outlook.
“We believe lithium markets will remain in deficit for the near and medium term before moving to structural deficit long term.
“This needs a demand rationing price, for which we have seen no evidence in the past 12 months despite record-high prices that are orders of magnitude above costs.
“Gaining conviction on a price that rations demand is hard given the speed of the secular transformation in lithium fundamentals under way.”
It is not just sentiment keeping lithium prices afloat.
UBS’ China Autos team sees EV sales up 30-35% in China year on year in 2023, despite the end of subsidies.
Globally that number is 31% YoY, with the biggest moves in the US (70%) and Japan (60%), with global energy storage forecast to grow an imposing 50%.
Lower prices for EVs could bump up demand as well, while — Musk be damned — supply issues continue to persist.
“Lithium supply delays continue,” UBS says. “AKE reported a further ~6 month delay to its Sal de Vida and James Bay projects, on top of earlier 6 month delay to Olaroz stage 2, for example.
“The impact of project delays is magnified by the rate of demand growth, e.g. UBSe 40% CAGR 2022-2025.”
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