UBS has updated its outlook on the lithium market, indicating a shift in the industry’s trajectory. The firm noted that the supply of lithium had outpaced demand throughout 2024, leading to a surplus and a decrease in prices by approximately 10-30% year-to-date. However, a response to the lower prices has emerged, with supply curtailments and a slowdown in the development of new mining projects.
Consequently, UBS now anticipates that supply growth will fall short of demand, forecasting a global surplus reduction and a market balance by 2027-28.
Despite the potential for curtailed production to resume swiftly, which could limit any imminent price surges, UBS expressed increased confidence that the market has moved past the bottom of the cycle.
Reflecting this improved outlook, the firm has raised its near-term price targets for spodumene in 2025 and 2026 by 7% and 17%, respectively, to $800 and $850 per ton.
In terms of equity, UBS maintains a sell rating on Australian lithium producers Pilbara Minerals Ltd (ASX:), Mineral Resources Limited (ASX:MIN), and Liontown Resources Limited (ASX:ASX:). The firm has upgraded Independence Group NL (ASX:IGO) to neutral from its previous rating, while maintaining a buy rating on the longer-dated option, Pilbara Minerals Limited (ASX:PMT).
The revised supply forecast for 2025 has been reduced by approximately 18% or 300,000 tons of lithium carbonate equivalent (LCE), reflecting the impact of price-driven curtailments and project delays. UBS expects global production growth to slow to 15% year-over-year, reaching approximately 1.5 million tons LCE in 2025. This slowdown is particularly notable in China, where production is projected to decline by 3% year-over-year into 2025, and in Australia, where despite project expansions, low prices continue to exert pressure.
On the demand side, UBS forecasts global lithium demand to grow by 18% year-over-year to 1.5 million tons LCE in 2025, a robust rate but slower than the over 20% annual growth seen in previous years. The firm highlighted several factors influencing demand, including U.S. policies under a potential second Trump presidency, EU carbon emission targets, trade tariffs on Chinese EV imports to the EU, and the growing importance of energy storage systems (ESS).
UBS’s price outlook for spodumene, a key lithium source, has been increased for the coming years, yet the firm remains cautious, suggesting that any price upside is limited by the potential reactivation of production that has been curtailed.
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