UBS Issues Caution on Lithium Stocks Amid Market Shifts

September 12, 2024 05:58 PM AEST | By Team Kalkine Media

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UBS Issues Caution on Lithium Stocks Amid Market Shifts — Image source: Shutterstock

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UBS has recently advised investors to reconsider their positions in several prominent lithium stocks, including IGO Ltd (ASX:IGO), Liontown Resources Ltd (ASX:LTR), and Pilbara Minerals Ltd (ASX:PLS). This cautious stance comes amid significant changes in the lithium market, particularly influenced by recent developments in the Chinese electric vehicle (EV) battery sector.

One key factor affecting UBS's recommendations is the temporary suspension of operations by Contemporary Amperex Technology Co. Limited (CATL), a major Chinese EV battery manufacturer. According to UBS’s China lithium analyst, Sky Han, this suspension could have a stabilizing effect on lithium prices. Han forecasts that lithium prices might settle around $US10,000 to $US11,000 per tonne, highlighting the market’s volatility and the potential for price fluctuations.

Additionally, Han predicts that the price of spodumene, a critical lithium-bearing mineral, could rise to $US1000 per tonne in the near term. This anticipated increase reflects a tightening of lithium supply and broader market adjustments. Despite this short-term positive outlook for lithium prices, UBS expresses concerns about the overall supply dynamics. The firm notes that additional lithium supply will be necessary to address a projected surplus by 2025.

UBS is particularly cautious about the influx of new supply from Africa and stresses the importance of the seaborne spodumene price over the Guangzhou Futures Exchange price. This distinction is crucial for understanding the competitive pressures faced by Australian lithium producers.

In light of these factors, UBS has adopted an underweight position on the lithium sector and recommends monitoring the market for further supply exits that could improve the sector's outlook. Consequently, UBS advises against holding shares in IGO Ltd, Liontown Resources Ltd, and Pilbara Minerals Ltd, reflecting a strategic move to mitigate exposure to potential market volatility and shifts in supply and demand. Investors should stay informed about ongoing developments in the lithium market to navigate these evolving dynamics effectively.

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