Lithium Leads A New Battery Metals Rush

Lithium, a key ingredient in renewable batteries, is back on the investment agenda after a series of positive developments, but the jury of analysts remains split on whether it’s a good bet or a flash in the pan.

One bank with no doubts about lithium is Citi which reckons a global glut of the energy-storing metal will dissipate by the middle of next year as demand for electric vehicles (EVs) accelerates.

Another leading bank, Morgan Stanley, is not so sure seeing little change in the lithium price over the next five years.

The intersection of those differing views is Albemarle Corporation, the biggest U.S.-based lithium producer with a world-class portfolio of assets and one of the star performers on the New York Stock Exchange since the U.S. election earlier this month.

Biden EV Boost

It was the apparent win by Joe Biden and the prospect of a more environmentally-focused administration which lit a fire under Albemarle’s share price which has risen by 21% from $93.43 to $117.93 since November 4.

Citi sees Albemarle heading towards a target price of $132 as demand for electric vehicles in Europe and China quickens with the U.S. also expected to see an increased demand for EVs.

Morgan Stanley, however, has its doubts about the pace of EV take-up and lithium demand which has led it to a low-ball price tip of $50 for Albemarle.

The gap in share price forecasts, $132 v $50, is remarkable but it is also a measure of the uncertainty in the market about how quickly battery-powered vehicles will be adopted by private drivers and commercial vehicle operators.

A complicating factor for EV believers and advocates of an investment in lithium and other members of the battery-metal family, including nickel, cobalt, graphite and manganese, is the low oil price which is helping lift the competitive appeal of gasoline and diesel powered vehicles.

Two Views On The Lithium Price

Morgan Stanley reckons the price of lithium carbonate, one of the primary ways in which the lightweight metal is traded, will be stuck in the $6000 a ton range for the next five years, a big fall from the average of $14,947/t in 2018.

This year’s average price for lithium carbonate sourced in South America is expected to be $6925/t, falling to $6288/t next year and then down to $6163/t in 2022 with a modest pick up to $6400/t in 2025.

Citi’s view is that the lithium supply and demand equation should meaningfully tighten over the next two years.

“The excitement in EVs has yet to translate into results in the lithium industry due to over-capacity in lithium mining,” Citi said.

“However, we expected the lithium inventory overhang to dissipate by mid-2021.”

The key to that optimistic view is significant growth in Chinese EV demand which is said to be almost back to the pre-Covid-19 pandemic high.

Perhaps more significantly the 164,000 EVs sold in Europe in September was more than the 125,000 sold sold in China in the same month.

Tesla Day Lift

Apart from the U.S. election and the potential for tighter environmental controls under a Biden-led administration, and tax incentives to make it easier to switch to EVs, Citi said the annual meeting of Tesla shareholders in September, had “changed the lithium conversation.”

That event, dubbed “Tesla Day” highlighted a concern held by original equipment makers about the long-term reliability of lithium supply.

Citi said lithium prices today were hovering around their pandemic lows with roughly five months of excess inventory in the supply chain with several mines mothballed and capital expenditure delayed.

“We anticipate 2021 to be a year when volumes turn around, and 2022 to be the year when pricing begins to inflect (rise),” Citi said.

“The could set up a strong cycle in 2023 and beyond.”