The Article21 Feb 2024 09:48
One of Bank of America’s most senior commodities strategists says the price of lithium-rich spodumene concentrate will be 63 per cent lower than he has expected this year amid weaker demand for electric vehicles.
Michael Widmer, the investment bank’s London-based analyst, has cut his forecast for spodumene to $US650 a tonne from $US1763. He has cut his forecast for the following year to $US1438 a tonne from $US2188.
Lithium prices have already fallen significantly over the last year, sending shockwaves through the local resources sector. Pilbara Minerals said it was unlikely to pay a dividend for the first half of the financial year while Core Lithium stopped mining last year and has warned of big write-downs.
Pilbara Minerals’ mine in WA. It warned that a fall in lithium price means shareholders shouldn’t expect a dividend in the first half of the year. New York Times
In a note to his clients, Mr Widmer said that while operators were focused on preserving margins through cost management, “we are concerned that lithium has not yet found a bottom”.
Mr Widmer said lithium prices have been under pressure because of surplus production. “Operators have been reluctant to curtail production, the project pipeline is well filled, and we continue to expect very high surpluses – this should keep the pressure on prices for now,” he said.
Part of the problem, he said, was competition between China and Australia for production in the strategically important sector, given lithium’s central role in products needed for the transition away from fossil fuels.
“Western producers keep pushing ahead on expectations that lithium demand will expand thanks to policies including the [Biden administration’s Inflation Reduction Act],” Mr Widmer wrote. “Furthermore, Australia’s government is now thinking about extending tax incentives to producers.”
“The threat of further trade restrictions, this time non-tariff, is also rearing its head again; this ultimately means just one thing: it protects the industry for now, but in the longer-term, consumers will have to pay more,” he said, adding that much of the increased supply in spodumene concentrate was “coming through in Australia” despite cut-backs at some mines.
Last week, Pilbara said the price it had secured for spodumene concentrate plunged to $US1113 a tonne from $US2240 a tonne.
Demand slows for EVs
In his note, Mr Widmer said a more recent challenge was slowing demand for EVs, with Bank of America’s analysts raising concerns that sentiment had “soured in late 2023”. “Commentary from dealers and [manufacturers] coincided with a stalling velocity of EV sales,” he wrote.
“Further investigation reveals a dichotomy in the EV market: the premium market has moved towards electrification, while mass-market adoption lags. This divergence is mostly driven by pricing, but EV prices are unlikely to converge with [internal combustion engines] in
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