Goldman Analysts Maintain Negative Outlook on Lithium Cycle Despite CATL Production Cuts

Goldman's Analysis of Lithium Market

Goldman analysts Trina Chen and Joy Zhang have recently shared their analysis of the lithium market in a client note. They discussed the reported production cuts at a major mine in Jiangxi province by Chinese battery giant Contemporary Amperex Technology (CATL). The analysts predict that these cuts could create a short-term price floor in the midst of a multi-year bear market, which may temporarily mitigate oversupply concerns for this essential battery metal. However, they were quick to underline that the broader perspective on the lithium cycle remains largely negative.

Impact of Production Cuts

Chen and Zhang commented on the lack of clarity regarding the exact extent of the production cuts. However, they estimate that these cuts could potentially affect global supply by 3.9% for 2024 and 5.2% for 2025, assuming a complete production cut. This estimation is based on a Reuters headline stating CATL's plans to adjust its lithium production.

Global Supply Surplus

The analysts also anticipate a significant global supply surplus in the integrated lithium carbonate market, predicting it to reach 26% for 2024 and 57% for 2025. They assert that the production cuts, along with a few other recently announced ones, will not be sufficient to reverse the negative outlook of the global supply/demand balance.

Cost of Integrated Lithium Carbonate

In their analysis, Chen and Zhang suggest that the marginal cost of integrated lithium carbonate remains at US$9.0k-10.0k/t-LCE. They believe this could potentially be lower due to ongoing cost-cutting efforts by Chinese producers. While the production cuts can support the pricing floor in the short term, the analysts are more interested in cuts in development projects that are necessary to drive fundamental changes in supply/demand outlook. They also noted that the current spot price of US$9,174/t-LCE may not be low enough to trigger significant responses.

Depressed Prices Due to Oversupply

The client note from Goldman included a chart pack illustrating that oversupply conditions have led to depressed prices. Despite the news of CATL's production cuts, Goldman is not convinced that lithium prices will recover.

UBS's Take on the Situation

In contrast, UBS analyst Sky Han suggested to clients that the recent developments at CATL could indicate an 11%—23% increase in Chinese lithium prices for the remainder of the year. The critical question now is whether the supply reduction from CATL is substantial enough to reverse prices and when the demand for electric vehicles will rebound.

Bottom Line

While the lithium market is facing a challenging time due to oversupply and depressed prices, the recent production cuts by CATL have stirred up some debate among analysts. While Goldman maintains a negative outlook, UBS sees potential for price recovery. As the situation evolves, it will be interesting to see how these predictions pan out. What are your thoughts on this issue? Feel free to share this article with your friends and discuss it further. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.