① In the past two years, most lithium-related targets have experienced a sharp decline. Currently, the market is still waiting for the time when supply and demand reach balance; ② Many lithium mining giants have also been targeted by bears as a result, but since February of this year, many companies' stock prices have clearly rebounded at a low level;
Financial Services Association, March 14 (Editor Shi Zhengcheng) Due to the deep correction in lithium carbonate prices at home and abroad from the end of 2022 until now, lithium mining giants such as America's Yabao and Chile's SQM, as well as domestic lithium ore stocks, have generally had poor stock price trends over the past two years. In contrast to this, many investors who have shorted lithium stocks have also made a lot of money in this wave of trends.
As the industrial chain adjustments triggered by the sharp drop in prices gradually showed an impact, a series of signs vaguely showed that bears who have shorted lithium stocks should now think more about risk.
Production is shrinking rapidly, and the balance between supply and demand is ongoing
Due to the oversupply of lithium ore over the past two years, prices have plummeted, and many producers have been forced to cut production capacity. For example, Australia's Core Lithium suspended the operation of its flagship lithium mine in January of this year and switched to uranium mining after the nuclear fuel price soared; the US stock listed company Arcadium also announced a reduction in spodumene production.
Diligent Wall Street analysts have also calculated this part of the impact.
Analysts at UBS Group and Goldman Sachs lowered their 2024 lithium production capacity forecasts by 33% and 26%, respectively. UBS also said that the lithium ore market is in a state of “rebalancing,” but it is currently still in a state of oversupply. If price sentiment rises too fast, the current balance may also be temporary. Goldman Sachs also mentioned that the current scale of oversupply is still very large, and it is not yet time to announce the end of the “bear market.”
Waiting for demand-side signals
Some news from the industry also shows that supply and demand are moving towards a balanced development.
Australia's Pilbara Mining issued an exchange announcement on Thursday saying that before the online auction scheduled to be held next week, the company accepted an offer to sell spodumene concentrate at a price of 1,200 US dollars/ton. More importantly, the company said that with this sale, the expected production within 2024 has basically been distributed, and it is unlikely that regular spot sales will be carried out again through the Battery Materials Exchange (BMX) during the year.
(Source: Australian Securities Exchange)
According to public information, Pilbara Mining's last public auction was at the end of 2022, when the transaction price reached an astonishing 8,575 US dollars/ton.
As the oversupply situation gradually declined, shorting lithium ore stocks also began to become dangerous. According to statistics, the short positions of top lithium miners Yabo in the US and Pilbara in Australia have exceeded one-fifth of the shares in circulation, which is equivalent to 5 billion US dollars. This also makes Pilbara the component with the heaviest short positions in Australia's benchmark stock index.
Judging from the stock price performance, this group of bears should have felt the signs of market changes — the stock prices of America's Yabo and Pilbara all increased by nearly 20% in February this year.
However, with regard to the “lithium ore price bottoming out” issue, reducing production capacity alone is not enough; we have to see a recovery in demand. Matt Griffin, fund manager at Maple-Brown Abbott in Sydney, said, “I doubt that lithium prices have bottomed out or are close to the bottom. The signal we are looking for right now is an increase in demand, either demand for electric vehicles exceeds expectations, or the battery supply chain is entering the replenishment cycle.”
