Monsters of Rock: Lithium prices crashing in China? Calm down, says Morningstar expert

Benchmark, Morningstar take aim at Morgan Stanley lithium commentary
Morningstar’s bullish Seth Goldstein says lithium carbonate prices will average US$70,000/t in 2023, calls this week’s lithium selloff an opportunity for investors
Materials and energy sectors strong on good day for ASX 200, outside the gold miners

Another day, another jolt to the system from a stock analyst putting the fear of God into the hearts of lithium bag holders.

This week it’s not Goldman Sachs, but Morgan Stanley, who you may recall as the curmudgeons who (correctly and controversially) called the end of the last lithium boom amid an onrush of supply from Australian spodumene producers in 2018.

A note from analyst Javier Martinez de Olcoz Cerdan is behind Thursday and Friday’s maelstrom in battery metals markets.

Commenting on global market leader Sociedad Quimica y Minera de Chile, he noted export volumes and prices for the company’s exports had dropped 10% and 11% respectively, with prices in China falling 21% to their lowest level since the early months of 2022.

US listed lithium stocks like SQM, Albemarle, Lithium Americas and Livent were hit hard.

That’s had an impact over here. Lithium bellwether Pilbara Minerals (ASX:PLS) has sieved over a billion bucks in value over the past two days, including a 5.06% decline today to $4.69 (MC $14b).

The Pilgangoora producer hit an all time high close of $5.42 last Friday but is now down around 14% over the past week.

Allkem (ASX:AKE), IGO (ASX:IGO) and MinRes (ASX:MIN) were all in the cross-hairs yesterday.

But price reporters and more bullish analysts have put paid to the idea lithium prices are falling.

In a Twitter thread Benchmark Mineral Intelligence CEO Simon Moores said trade data did not tell the full story about lithium pricing, which is currently one of short supply and high demand in the Chinese spot market.

”

Lithium Prices <thread>

Morgan Stanley et al putting out lithium price decline narratives.

There is zero industry evidence to suggest lithium’s price decline from all time highs is today or even tomorrow

(TBD @ Benchmark Week, 14-18 Nov, LA > https://t.co/63jk7MQz8m )

— Simon Moores (@sdmoores) October 13, 2022

“It doesn’t take a genius to make a call that lithium prices will eventually come down,” he said.

“Lithium is one the longest price rallies in any “commodity” in recent memory.

“But there is always a scramble at the banks to be the first to call it. Which misleads the market as to whats really happening.

“Using bad data / trade data can do this. It’s why regulated price reporting agencies (PRA) like @Benchmarkmin have business.”

Lithium chemical prices to average above US$70,000/t in 2023: Morningstar

Prices for spodumene continue to stay high and stable as well, with Chinese price reporters telling a similar tale to Western agencies.

At US$5260/t, Shanghai Metals Market’s 6% Li2O spodumene price is the highest it’s quoted.

Referring to the US players, Morningstar Lithium bull Seth Goldstein says the selloff is an opportunity for investors to pick up “high quality producers at a good discount”.

He thinks the market expects in a fall in lithium carbonate spot prices that is unlikely to be seen in 2023.

“We think the market is forecasting lithium spot prices, which are currently around US$74,000 per metric ton for carbonate, will fall materially in 2023 as new supply enters the market.

“However, we point to strong demand growth from increased EV sales as the driver that will keep prices high.”

Morningstar continues to forecast lithium carbonate prices averaging US$70,000/t next year.

“For low-cost lithium producers, this should lead to higher average realised prices in 2023 as there is somewhat of a lag between spot prices and realised contract price, that varies on producer pricing strategy.”

Take that, MS.

And over to the markets?

While Pilbara Minerals may still be in the doghouse today, its closest comparison Allkem is suffering no hangover, up a spritely 4.53%, outpacing even hot energy stocks Santos (ASX:STO) and Woodside (ASX:WDS).

Developer Liontown Resources (ASX:LTR) is also in Monstar territory, up 7.57%, with the major iron ore stocks all green, led by BHP (ASX:BHP).

The reality of future rate rises seems to have set in slowly over the course of the day for the gold sector, with the All Ords Gold sub-index off 1.33%.

The broader materials sector rose 1.38%, with energy up a market leading 3.75% against an ASX 200 gain of 1.75%.