Why Goldman Sachs is still bearish on lithium

• Goldman Sachs analysts remain bearish on the lithium market, predicting a global supply surplus of 26% in 2024 and 57% in 2025.
• While CATL’s production cuts may provide temporary price support, Goldman Sachs believes deeper cutbacks in development projects are needed to fundamentally change the supply and demand outlook.
• According to Goldman Sachs, the current lithium spot price is not low enough to trigger significant supply responses.

Goldman analysts Trina Chen and Joy Zhang explained in a client note on Thursday that reports of Chinese battery giant Contemporary Amperex Technology (CATL) cutting lithium production at a major mine in Jiangxi province could produce a price floor “short-term” over a period of several years. bear market, temporarily allaying oversupply concerns for the critical battery metal. However, they stressed that the overall outlook for the lithium cycle remains profoundly “negative”.

“While it exists lack of clarity on quantifying the production cut, we estimate that the potential impact on global supply would be 3.9% for 2024E and 5.2% for 2025E, if a total production cut is assumed,” the analysts said, referring to a Reuters title that specifies CATL intends to adjust its lithium production.

They said: “Meanwhile, we expect the global supply surplus in the integrated lithium carbonate market to reach 26% by 2024E and 57% by 2025E. Thus, we do not believe that the production cut, along with several others recently announced, would reverse the negative outlook of the global S/D balance.”

“Our work (on the global cost curve) suggests that the marginal cost of integrated lithium carbonate remains at $9.0k-10.0k/t-LCE and potentially lower due to continued cost reduction efforts by Chinese producers, on based on 1H24 feedback. While production cuts may provide support for the price level in the near term, we remain more focused on reductions in development projects that are necessary to generate fundamental changes in the S/D perspective. And the current spot price of $9,174/t-LCE may not yet be deep enough to trigger meaningful responses,” the analysts observed.

The end of the note included a set of charts showing that oversupplied conditions have depressed prices.

While Goldman isn’t too convinced that lithium prices will rise from here on the CATL news, UBS analyst Sky Han told clients on Wednesday that the latest development from CATL may suggest an 11%—23% increase in China’s lithium price for the rest of the year.

The key question is whether the development at CATL is enough supply exiting the market to reverse prices. Another question: when will EV demand come back?

By Zerohedge.com

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