Goldman Sachs says Lithium Facing Oversupply, Canaccord Calls BS

lithium oversupply
Published on: June 2, 2022
Author: Philip Tai

In the beginning of 2022, investors started to pay attention to the growing demand for lithium.  Fueled by news about Tesla dominating the car market, climate change spurring the need for clean energy alternatives, and reports of chronic undersupply of the strategic metal, lithium prices were reported to have shot up to $76,700 a tonne.

Lithium stocks, likewise, had seen a boom during March based on reports of the rapid rise in lithium prices and its long term positive outlook.  It was a shock to investors this week when Goldman Sachs reported that the metal, along with other battery metals including cobalt and nickel, would sharply correct in the next two years.

Goldman Claims Lithium Prices Facing Sharp Correction

Goldman’s Metals Strategist Nicholas Snowdon said earlier this week that investors’ interest in battery metals, spurred by fears of climate change, had ensured capital inflows into the sector.  Increased capital in the sector will lead to the growth of supply of lithium and cause prices to stabilize and even drop.

“Battery’s demand prospects, combined with their clear ESG benefits, helped trigger the start of a supply capex surge from the late 2010s that was merely accelerated by the policy response to Covid,” Snowdon claimed.  Between now and 2025, Goldman expects a one-third on-year increase in lithium supply, 14% increase in cobalt and 8% in nickel set against annual demand growth rates of 27%, 11% and 7%, respectively.

Much of the additional lithium supply is expected to come from increases in Chinese and Australian hard rock projects, as well as growth in spodumene supply leading to a  sharp correction in prices, with lithium falling from $53,982 a metric ton in 2022 to $16,372 a ton in 2023.

Canaccord Says Lithium Supply Predictions “Frequently Disappoint”

Cannacord mining analyst Reg Spencer, operating out of Sydney, Australia, quickly clapped back on Goldman’s claims.

“That oversupply in the market that Goldman Sachs is referring to is in lithium production from China lepidolite sources which is lower grade, difficult to process and more expensive to process in comparison to spodumene,” he said, in an extended quote.

“I’ve been covering this sector for seven years and I can tell you supply always disappoints, especially from unconventional sources such as lepidolite that Goldman Sachs is referring to in their research report.”

“Lithium projects are always behind schedule, always, and to say that the world’s supply issues are going to be resolved in three years from unconventional resources, which means higher costs to produce and extract…I think is wrong.”

“It’s ridiculous, two months ago the market didn’t care about what was going to happen in 2023 but it is because of this report and reports by others including Credit Suisse, that everyone seems to be panicking and selling their shares,”  Spencer continued.

“But it is important to note that all we have seen so far is a fall in equities… This is an equities market correction, if you have a look at the fundamentals of the lithium industry, they are still very strong.”

Is United Lithium Poised to Succeed?

While lithium stocks dropped this week, the fundamentals for lithium’s future supply/demand dynamics is favourable, according to Spencer.  Exploration companies focused on finding lithium may be the future of this industry.

United Lithium Corp. (CSE: ULTH) is an exploration & development company that is looking to supply tomorrow’s global demand for lithium. ULTH is targeting lithium projects in politically safe jurisdictions with advanced infrastructure that allows for rapid and cost-effective exploration, development and production opportunities, including Finland, Sweden, and Canada.

In early May 2022, United Lithium announced that it established “dominant land position in an historical lithium pegmatite production area near Custer, South Dakota”, expanding its assets to another safe jurisdiction in the US.

According to ULTH, the Custer and Keystone areas in the Black Hills of South Dakota produced significant amounts of lithium in the 1940s and 1950s. Records indicate nearly 200,000 tonnes of lithium was mined and recovered from the Black Hills during this time.

Keep an eye on United Lithium!

Disclaimer: The company described in this article is a customer of NAI Interactive Ltd. This material is for informational purposes only and is not intended as a recommendation or offer or solicitation for the purchase or sale of any securities or financial instruments, or for transactions involving any financial instrument or trading strategy.

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