Investing.com -- Despite the widely recognized surplus, Bernstein analysts note early indications of a shift in the lithium market.
They attribute this potential turning point to supply reductions and decreasing inventories, which are expected to help stabilize prices. Looking ahead, while 2025 is projected to bring substantial capacity expansion, they anticipate demand will exceed capacity growth by 2026, creating a favorable outlook for lithium prices.
Bernstein’s Wednesday report details that lithium prices, after peaking at $80,000 per tonne in 2022, have since plummeted by more than 85% to $10,000 per tonne, a figure below the marginal cash cost of production.
“High-cost lithium suppliers are cutting supply which should help stabilize prices,” analysts led by Brian Ho said in the note. “While supply curtailment is positive for pricing, ample inventory and potential restarts should keep a cap on prices in the near term.”
According to Bernstein, China's lithium inventory has seen a decrease from 130,000 tonnes in the third quarter of 2024 to 100,000 tonnes, with inventory days dropping from 40 to less than 30. This reduction suggests that supply and demand are moving towards equilibrium, although inventory levels remain above the long-term average.
Looking ahead, Bernstein predicts that the capacity expansions through 2025 will be sufficient to meet the projected demand growth, keeping prices in check. However, the firm estimates that capacity growth will slow down in 2026 and 2027, potentially leading to a tighter market.
The firm projects that demand as a percentage of production capacity will rise from the 2025 bottom at 77% to 89% by 2027.
Bernstein forecasts that spot lithium carbonate prices could average $12,000 per tonne in 2025, with a significant increase to $20,000 per tonne in 2026 and $25,000 per tonne in 2027. These projections are more optimistic than the current market consensus.
In terms of individual stocks, the firm highlighted Sichuan Tianqi Lithium Industries (SZ:002466), a leading China-based global supplier of lithium products. Bernstein believes Tianqi's shares are currently undervalued, pricing in a long-term lithium carbonate price of $12,000 per tonne, which is lower than Bernstein's expected price of $15,000 per tonne.
“Tianqi’s share price has historically moved 6-12 months ahead of spot lithium carbonate prices,” analysts noted. “With lithium prices expected to rise in 2026, Tianqi’s share price could rise through 2025 if the market starts to price in tighter market ahead.”