Second Wave of Lithium Supply Coming: UBS By Investing.com

Investing.com — The global lithium market is on the verge of major changes with a new wave of supply entering the market.

Analysts at UBS have identified this “second wave” of lithium supply, driven mainly by emerging sources in Africa and China, as a key factor in reshaping market dynamics.

The emergence of a new lithium supply is fast becoming a reality rather than a distant prediction.

UBS analysts point to Africa and China as the main regions contributing to this new supply wave.

“We see volume on the continent (Africa) rising from 0 in 2022 to ~290kt LCE in 2028 before reaching ~10% of global supply,” the analysts said.

This growth positions Africa to account for nearly 10% of global lithium supply by that time. Despite the logistical challenges, the continent’s lithium resources are increasingly viable.

On the other hand, China is poised to greatly expand its influence in the lithium market. Chinese lepidolite producers and those operating African spodumene assets are emerging as new marginal cost players.

UBS analysts signal that production costs in China are lower than previously anticipated, which could put downward pressure on global lithium prices. This cost advantage is crucial because it can redefine the price level for lithium on a global scale.

Expected supply growth from Africa and China prompted UBS to adjust its lithium price forecast downwards.

The new supply dynamics suggest a potential oversupply in the market until the mid-2020s, which is likely to lead to substantial price reductions.

UBS cut its short-term lithium price forecasts by 3-26% for the years 2025-2028. For example, spodumene prices, currently below $800 per tonne, are now forecast to average $750 per tonne in 2025 and $725 per tonne in 2026.

These numbers mark a decline compared to previous forecasts and consensus estimates. However, the long-term forecast for lithium carbonate remains stable at $19,000 per tonne, indicating a cautious outlook despite the expected increase in supply.

The influx of new supply is expected to have far-reaching implications for lithium producers and investors. UBS downgraded several lithium stocks, reflecting the anticipated impact of lower prices on profitability.

For example, Pilbara Minerals (ASX:) saw its price target cut to $2.00 per share, with UBS maintaining a “sell” rating on the stock.

Similarly, IGO (ASX:) Ltd was downgraded from “neutral” to “sell” with a revised price target of $4.95 per share.

Going forward, the arrival of a second wave of lithium supply from Africa and China will transform the global lithium market.

While this new influx of supply could address some of the concerns about meeting future demand, particularly from the electric vehicle sector, it also poses challenges for existing manufacturers, who may face tighter margins and increased competition.

UBS recommends that the market prepare for potential price volatility and lower yields for lithium producers. The entry of new, lower-cost suppliers is expected to cause a recalibration of the market, with profound long-term effects on both prices and supply dynamics.