UBS wakes up lithium bulls with price upgrade

• Optimism has returned to the lithium market, with prices rising close to 20% on mine closures in China
• UBS analysts think supply cuts could deepen in the Middle Kingdom in the next 6-12 months
• Investment Bank lifts spodumene price forecast 32% for 2026

A wave of euphoria has come across the lithium investment space since two key mine closures in China forced by regulators sparked speculation the surplus which torched the battery metal and thrust it into a three-year ‘lithium winter’ could be closing.

That high was enhanced further on Tuesday, as UBS’ well connected lithium team upped its near-term spodumene prices 9-32%, expecting Chinese supply cuts to deepen in the next 6-12 months.

Up to 240,000tpa of lithium carbonate equivalent – ~15% of global supply – is now at risk according to UBS analysts including Australian mining research chief Lachlan Shaw and Hong Kong based lithium expert Sky Han.

Lithium prices surged as high as US$80,000/t and above for battery chemicals and US$8000/t for the hard rock concentrate known as spodumene – the kind produced by Aussie miners – amid a post-Covid electric vehicle boom in 2021 and 2022.

But a radical uplift in supply from Australia, Africa, South America and China prompted a fast correction that sent prices for chemicals to the low US$8000/t mark and spodumene to under US$600/t earlier this year.

Lithium carbonate prices have run 18% higher since late July, when battery giant CATL was forced to idle its Jianxiawo lepidolite mine, which followed the suspension of a series of operations run by Zijin subsidiary Zangge Mining in Qinghai.

But a review has prompted another price upgrade from UBS, which says a further seven lepidolite mines in Yichun amounting to 6% of global lithium carbonate equivalent supply could be curtailed, along with Citic Guoan’s brine ops in Qinghai, which runs the risk of running over its production quota.

At its base case, UBS says lithium carbonate prices will go to 100,000RMB/t in China next year (US$13,980/t). That would flow onto the spod currently peddled by Aussie miners like Pilbara Minerals (ASX:PLS) and Mineral Resources (ASX:MIN), with UBS upping its 2026 tip 32% to US$1250/t, its 2027 forecast by 10% to US$1150/t and its 2028 prediction 23% to US$1350/t.

UBS’ long-term price remains unchanged at US$1200/t, 9% below the long-term consensus of US$1313/t.

Optimism returns

Still, its optimistic outlook (compared at least to 2024 and 2025’s very lean years) seems to have stirred some very excited buyers in Aussie lithium producers.

PLS ran a massive 7.91% higher, just two days after MD Dale Henderson struck an upbeat note after the Pilgangoora mine owner’s financial report.

The firm’s revenue tumbled 39% to $769m, pushing the Port Hedland exporter from a $257m profit in 2024 to a $196m loss.

But with $1bn in the bank, PLS is among the better equipped lithium producer to ride out the storm of low prices.

After producing 754,600t at costs of $627/t, it expects to deliver 820-870,000t at $560-600/t in FY26.

Henderson revealed the company had completed a spot sale in August at a 6% Li2O price of US$1050/t, 10% above the market average.

“So that delta underscores the disconnect that can occur between published indices and realised market outcomes. This reflects the direct dynamics between producers and consumers,” he said.

“I should also add this cargo attracted very strong bidding interest, again, another sign of the market that we’re in at the moment.

“Also as another market insight, several major chemical converters have recently approached PLS seeking additional tonnage for next year. This may also be an early signal of tightening supply expectations. Time will tell.”

The prolonged period of low prices will chill investment in the new supply that would avoid future deficits as demand from EVs and energy storage grows, Henderson added.

UBS also on Tuesday lifted PLS’ rating from a sell to a neutral, upping its price target from $1.60 to $2.30.

MinRes was up close to 6% at 3.30pm AEST on Wednesday. Chris Ellison’s lithium and iron ore producer is due to report its full-year results on Thursday morning and has stakes in WA’s Mt Marion and Wodgina mines as well as the mothballed Bald Hill operation.

It received a bump from neutral to buy, with UBS lifting its PT from $37.40 to $40.40.

Greenbushes part-owner IGO (ASX:IGO) was 3.2% up after being bumped from sell to neutral with its UBS price target up from $4.80 to $5.75, while smaller players were even more exuberant. Gina Rinehart, and now Australian Government, backed Liontown Resources (ASX:LTR) was ~10% higher at 92.3c, while explorer/developers Delta Lithium (ASX:DLI), Wildcat Resources (ASX:WC8), Patriot Battery Metals (ASX:PMT) and Galan Lithium (ASX:GLN) were all in the green.

Rio Tinto (ASX:RIO), which bought Argentine brine producer Allkem this year,  was 1.15% up.

There are some potential nasties in there.

UBS warns lithium carbonate could slip as low as 70,000RMB/t (US$9790/t) if all four of its flagged supply cuts are avoided or come back online.

Equally, high-cost operations could be brought back online or ramped up, especially petalite supply from Sinomine and Huayou Cobalt in Africa and latent capacity owned by Zijin Mining.

At the same time, demand signals are good. EV sales were up 26% YoY in June, with China growing 31%, while the energy storage story is growing with the project pipeline for 2025-2030 up 117% YoY to 1.7TWh.

Current lithium carbonate spot price sits at US$11,388.06/t, with 6% Li2O spodumene at US$920/t.

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