Is a lithium revival on the way?

In a recent article written by Josh Chiat and published in Stockhead on May 24, Josh interviews Canaccord Genuity lithium expert Reg Spencer who is talking up a positive lithium revival.

In that article, Canaccord Genuity lithium expert Reg Spencer says the recovery in lithium prices is more than a ‘dead cat bounce’, with the corporate advisory firm and brokerage “constructive” on the battery metal over the next 18 months.

Let’s take a deviation to BOA Resources … who is drilling three lithium targets this year in the Lake Johnston and Mt Ida region – both highly prospective for lithium mineralisation.

BOA’s three lithium projects being drilled are: Two Tanks, Bald Hill East and Cat Camp.

Back to the Stockhead article, with chemical prices tanking in China last year, falling from more than $US80,000/t to about $US13,000/t, the spodumene concentrate produced by Aussie miners took a dive as well, with benchmark prices sliding from more than $US8000/t to as low as $US850/t in January this year.

But they’ve since recovered to $US1185/t, with Fastmarkets prices averaging $US1224/t so far in May.

So, is the rebound destined to falter, or are we coming into a new stage of the cycle for the electric vehicle battery ingredient?

“We are not of the view that this is a dead cat bounce,” Spencer told Stockhead.

“Our supply and demand modelling suggests a market that’s in balance in calendar ‘24 and calendar ‘25. We model a very small surplus.”

Canaccord’s models include a provision for some low-grade, high-cost Chinese lepidolite and Zimbabwean hard rock projects to ramp up production.

Those mines were the Schrodinger’s cats of the lithium market, seemingly simultaneously alive and dead.

But Spencer said the outcome which had these mines performing to spec was already provided for in CG’s model.

“If pricing stays here, there is the possibility that this supply remains offline or at least the supply that has been closed remains offline, as is the case with some Chinese lepidolite operations,” Spencer said.

“But then secondly, some of this African spodumene supply, it’s not clear yet as to how those assets are ramping up and performing.

“Embedded in our supply demand modelling, we assume that those operations ramp up to full capacity during the course of this year.

“There’s never been a lithium asset outside of Sigma (the Grota do Cirilo mine in Brazil) that has ever ramped up to nameplate without any troubles or commissioning issues.

“So that market balance that I referred to for ‘24 and ‘25 is a fine balance.

“If there is any disappointment in any major supply source through the course in the year or now, we could very much find ourselves back to market deficit conditions, which would then support a higher spodumene price as we move into the second half and in 2025.”

Revival mechanics
Spencer noted the closure and curbing of operating lithium mines showed the price had fallen below incentive pricing and levels needed to keep marginal producers operating earlier this year.

That suggests the (around) 30 per cent revival in lithium prices was a reaction to market fundamentals, rather than speculation on hitting the bottom of the cycle.

“We also saw other classic bottom of the cycle signals when you saw some high cost operations like Core Lithium (ASX:CXO) move on to care and maintenance and new projects were deferred,” Spencer said.

“So we think the set up is not that bad. Certainly not as bad as what some of the equity valuations might imply.”

CG’s latest pricing forecasts anticipate SC6 trading between $US1250-1500/t over the rest of the year, implying chemicals pricing of between $US15,000-20,000/t, Spencer said.

“I suppose $US1250 is a long way away from $US6000, where it peaked in late 2022.

“But it’s important to remember that those prices were never sustainable in the first place.

“And if you have a look at historical prices for spodumene concentrate, the price was $US400-600/t for a very, very long time.

“So in the context of history, $US1500/t or $US1250/t is actually not too bad and any decent producer should be able to make decent margins at current prices.”