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Lithium picks in a strengthening market

1 Nov 2021 6 month(s) ago

Rising demand for electric vehicles increasingly seems a certainty, which is good news for lithium stocks.

One sector that should attract investors is lithium mining. The mineral is crucial for batteries in electric vehicles, as well as many other battery applications. As the world pushes towards mandating electric vehicles, there is likely to be strong demand.

JP Morgan says that its latest global electric vehicle (EV) sales data showed that penetration rates reached 15% for Battery Electric Vehicles (BEVs) in the European Union 8, with overall EV penetration running at 43% (up from 25% last year).

“Headwinds from chip shortages have had minimal effects on the EV momentum. China is on track to more than double BEV sales vs. 2020 – its Aug/Sep BEV penetration rate was 16% (vs. 5% a year ago), with total EV penetration at 23%. China remains on track to record EV sales over 2m in 2021.

“The US is gathering momentum, with total EV penetration 10% and BEVs at 3% vs. 6%/2% respectively in Sep-20. In contrast to China, hybrids command a higher share of new vehicle sales. Overall, increased momentum in penetration rates for major economies is positive for lithium demand and prices. For more on the lithium market, refer to our recent report.”

Lithium prices have rebounded this year:

 

JP Morgan is forecasting that by 2030 the penetration rate for battery electric vehicles (BEV’s) to be 34% from 21%, and total EVs will go from 45% to 62%.

“This has led to a significant upgrade to our 2030 lithium market demand to 3.4Mt LCE (from 2.2Mt). We had already foreseen a deficit market, and our new demand outlook requires even more supply growth. This backdrop is likely to keep prices high for the foreseeable future.”

JP Morgan believes there is a buying opportunity. Its key pick remains IGO, followed by Orocobre (ORE). It has neutral recommendations on Pilbara Minerals and Mineral Resources (MIN) “given less valuation support (and in the case of MIN uncertainty around iron ore cash flow and project delivery timelines).”

Macquarie notes that Liontown Resources (LTR has been the best
performer this year, rising 335% while Pilbara and Orocobre are up 129% and 86% respectively.

“Share prices for IGO and MIN have also increased 36% and
14%, respectively. We expect the prices of all three commodities to push
higher in the near term before moderating."
Macquarie says it remains positive on ASX Lithium miners: 

“Pilbara Minerals (PLS) boasts near-term growth, as it recently commissioned
the coarse production circuit of the Ngungaju plant at Pilgangoora. Our preference for Australian based producers remains unchanged with PLS our key pick which offers strong near-term production growth.

“Mineral Resources remains one of our preferred stocks in the broader resources sector. Orocobre offers unique exposure to both lithium brine in South America and spodumene production in Australia. Liontown Resources’ Kathleen Valley remains one of the largest development projects with offtake available to third parties.”

 

 

Reader note: This is general reporting only and should not be considered in any way to be investment or tax advice. It does not take into consideration the investment objectives, financial situation or particular needs of any particular investor. For more information please read our disclosure statement.

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