Lithium price 2023: are Goldman Sachs and Credit Suisse misguided?

Lithium’s price has been the breakout commodity of 2022. The key ingredient inside EV batteries has risen by well over 1,000% since 2020, striking a record 597.500Yuan/tonne in China a fortnight ago, before dropping back slightly to 591,500Yuan/tonne today.

And with EV demand accelerating, lithium prices and the best ASX lithium stocks appeared on an unstoppable bull run. However, the recent dip could be partially due to the views shared by two powerful investment banks in recent days.

2023 lithium price: Goldman Sachs and Credit Suisse

The first, Goldman Sachs, despite cutting its 76,000 tonne 2023 surplus prediction from earlier this year, has doubled down on its view that ‘overcapacity and slowing (electric vehicle) sales’ could soon seriously slow the lithium market.

This isn’t the first time Goldman has aired its views on lithium’s incredible trajectory. On 1 June, it wrote a note stating that ‘we see the battery metals bull market as over for now’ due to ‘outsized supply response well ahead of the demand trend.’

In response, the larger ASX 200 lithium stocks including Core Lithium, Pilbara Minerals and Allkem all saw their share prices sharply decline by circa 15% apiece and took months to recover even as lithium prices rose.

The second, troubled bank Credit Suisse, has warned investors over ‘speculation in China that a major cathode producer might have slashed production targets and some Chinese firms forecasting softening in the market later in 2023.’

These twin proclamations have again seen a sell-off in both many of the larger lithium large caps in addition to emerging lithium producers including Lake Resources and Liontown Resources.

The simplified bull case for lithium prices 2023

Days after the two investment banks put their thoughts to paper, ASX darling Pilbara Minerals set yet another record sale price for its spodumene at the Battery Material Exchange. Its cargo of 5,000dmt at a target grade of ~5.5% lithia’ was sold for US$7,805/dmt (SC5.5, FOB Port Hedland basis) which on a pro rata basis for lithia content and inclusive of freight costs equates to a price of ~US$8,575/dmt (SC6.0, CIF China basis).’

It appears the expected Chinese slowdown — a country where one in three new cars is now an EV — is yet to materialise. And with lithium mines requiring circa 10 years to begin producing, the lithium price could surge yet higher in 2023.

On the supply side, weak output in China’s Salt Lake systems as a result of poor weather, lockdowns, and power cuts, has increased demand further for Australian lithium. Meanwhile, the USA’s Inflation Reduction Act has increased EV tax credits to $7,500 on qualified vehicles through 2032, and the country is building 500,000 EV charges amid a $3.1 billion plan to boost domestic battery production. Half of all new cars sold in the US are set to be electric by 2030, with similarly ambitious plans in place across the western world.

In the Global Electric Vehicle Outlook report, published by the International Energy Agency, EV sales doubled in 2021 to a record 6.6 million. And global sales in 2022 are set to improv eon this figure.

Most importantly, Sociedad Química y Minera (SQM), the second-largest lithium producer in the world, has given its vote of confidence that the lithium bull market will continue. After quadrupling sales to $2.95 billion and seeing net profit rise tenfold to $1.1 billion in Q3, it expects global lithium demand to rise by at least 40%, far above increase of supply.

Of course, it’s worth noting that lithium sources, whether brine or spodumene, are typically non-fungible. Their special chemical properties mean that different sources cannot be easily interchanged, leaving this ‘specialty chemical’ off the traditional commodities market.

Therefore, Chinese prices currently represent the best available bellwether, and there will be minor differences in lithium prices depending on the market.

And lithium remains near its recent all-time-high, with some evidence suggesting that the banks may have underestimated the strength of demand.

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