China boost hopes of lithium revival

• Brokers are back on the lithium train as prices stabilise in China
• Shanghai Metals Market says survey shows batterymakers will likely lift output after weak demand cratered prices in early 2023
• Materials sector up big with battery metals and Rio Tinto leading the way

Bearish brokers are back on the lithium bandwagon, with Morgan Stanley — the bank which famously predicted the 2018-2020 crash — seeing upside on its US$25,000/t target on lithium carbonate for the second half of 2023.

My, my, #Lithium must really be a buy…

Perennial bears @MorganStanley sees upside risk to their 2H 2023 price forecasts… pic.twitter.com/743OCTjwud

— Howard Klein (@LithiumIonBull) May 5, 2023

That has sent ASX investors crashing through windows to offer their first born in exchange for local lithium miners, who have spent much of this year watching chemical prices fall despairingly by over 50%.

In part the issue is the spodumene produced by those very same ASX-listed producers, accounting for half of the lithium raw materials on the market, remains so expensive that at under US$30,000/t converters were losing a tonne of cash.

Those loss making enterprises are starting to shut-up shop, halting supply and giving those in operation the opportunity to jack up prices.

In that context, the bounce could be dead cat. If demand isn’t there then lower spodumene prices (down from current levels of around US$4000/t) could be the outcome.

But already lithium chemical prices are recovering, with China’s hydroxide and carbonate spot markets up around 12% and 18% respectively in the past week according to Fastmarkets.

Industry figures in the network of local mining diary the Shanghai Metals Market reckon there is a bit of steam to the rebound.

Battery makers ramping up production schedules

Projections for EV sales growth in China remain strong, with Albemarle last week saying it expected to see a 30% lift in 2023 despite a weak first quarter.

Analysts, SMM says, see the wait and see attitude towards EVs ending in May, with a challenge from internal combustion engine vehicles which staged a price war to clear stock that won’t meet new emissions standards by July “faded”.

“Some battery makers said that LFP battery prices have stabilized and LFP battery makers are unlikely to slash prices during future negotiations,” SMM writers said.

“Some industry players pointed out that destocking by power battery makers will come to an end in May in optimistic scenario, thus raw material purchases will pick up, which will support lithium carbonate prices.

“Survey by Iccsino shows that some leading battery makers have raised their production schedules for May by 20-30% from April, and some smaller battery makers plan to raise their production schedules by more than 50% due to low production.

“However, some industry players said it is still difficult to determine whether the price rally will sustain as it remains to be seen whether the end demand has truly recovered.”

Something about dead cats bouncing.

Let’s take a look at how the big dogs of the lithium industry are faring at 3pm AEST, an hour and change before the market close.

Pilbara Minerals (ASX:PLS) is up 4.55% to hit its strongest price since mid-Feb.

IGO (ASX:IGO) rose 3.82%, with Allkem (ASX:AKE) and Liontown (ASX:LTR) in the green.

Rio Tinto (ASX:RIO), which has a small lithium department alongside its giant iron ore, copper and aluminium divisions, rose 2.73% despite iron ore prices crossing below US$100/t for the first time in 2023 last week.

Core Lithium (ASX:CXO) was the top performing mid-cap miner, up 7.25%.

Outside of lithium, Lynas Rare Earths (ASX:LYC) was the biggest winner, up more than 10% after securing another six months of cracking and leaching approval at its Kuantan processing plant in Malaysia.

Champion Iron (ASX:CIA) also gained 3.96%, while Iluka Resources (ASX:ILU) and Paladin Energy (ASX:PDN) were similarly popular.

The materials sector was up 1.68% as of 3.40pm AEST.

Monstars share prices today:

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