GS, Battery Metals Watch: Lithium's delayed decline11 Nov 2022 08:26
Goldman Sachs
Commodities Research
9 November 2022 | 12:03PM GMT
Green Metals
Battery Metals Watch: Lithium's delayed decline
Stimulus-led restocking means high lithium prices to remain near term. In 02 this year, we called for peaking battery metals prices as mounting supply responses were set to catch up to the accelerating demand. Since then, the cobalt price has Nicholas Snowdon fallen 35% and nickel is down 40%, but onshore lithium prices have risen (24%) to record new levels. For lithium, whilst the supply response we had estimated has continued to gather pace, as evidenced by surging Chinese lithium carbonate output. LFP battery expansion related restocking demand and higher-than-expected EV sales. Gelman Sachs national in China due to the exceptional stimulus have kept the market tighter than expected. Now, adjusting our global lithium demand assumptions for this stronger restocking environment-which has boosted global lithium consumption by 20% this year- the lithium market is expected to be in an 84kt deficit in 2022 (vs 8kt surplus previously) and a small surplus in 2023 (vs 76kt surplus previously), in our view. However, this merely represents a delay in the swing into surplus and lower prices that we previously forecast for next year. The Chinese EV market is moving towards a demand constrained state over the next 1-2 years when end-user EV demand will likely lag production, as a stimulus based surge in orders YTD has brought forward much of the demand we expected in 2023-24. Furthermore, we continue to expect strong supply growth in raw materials (brine, spodumene, lepidolite) from Chile. Australia and China over 2023-2025, With downstream overcapacity and slowing EV sales likely to become increasingly apparent over the course of next year, we expect downward pressure on the lithium price to build on surplus cues particularly from H2-23 onward. In this context, we are upgrading our China lithium carbonate spot (excl. VAT) price path through 23H1 to reflect near-term tightness and lagging spodumene contract price pass-through before a decline over the second half of next year to put the 2023 average at $53,304/t LCE (vs. $16,372/t LCE previously), though our forecast of a sharp reprice lower in 2024 remains unchanged (GSe $11,000/1)
Lithium supply response is gaining momentum. Just as demand has remained
strong, lithium's supply response has also gathered momentum. Chinese chemical production has risen +43% y/y YTD, driven by an increase in raw material supply from both onshore and ex China assets. Major expansions in China are driven by lepidolite and brine projects on our analysts' estimates and the aggregate run-rate of the majority of projects has reached +89% v/y for 22H2E, up from +56% v/y in 2201 Furthermore, exports of Chilean brine have risen by 44kt YTD (6% of global supply),
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