Due to the deep decline in lithium carbonate prices both domestically and internationally from the end of 2022 to the present, the stock price trends of lithium mining giants such as Yabao in the United States and SQM in Chile, as well as a group of domestic lithium mining stocks in the past two years, have generally been bleak. On the contrary, many investors who short lithium mining stocks have also made a lot of money in this trend.
As the industrial chain adjustment triggered by the sharp drop in prices gradually shows its impact, a series of signs suggest that bears who heavily short lithium mining stocks should now think more about risks.
Rapid contraction in production, supply-demand balance in progress
Due to the oversupply of lithium ore in the past two years causing a sharp drop in prices, many manufacturers have been forced to reduce production capacity. For example, Australia's Core Lithium suspended its flagship lithium mine operations in January this year and switched to uranium mining after a sharp rise in nuclear fuel prices; Arcadium, a US listed company, also announced a reduction in spodumene production.
Diligent Wall Street analysts have also calculated this part of the impact.
Analysts from UBS Group and Goldman Sachs have lowered their expectations for lithium production capacity in 2024 by 33% and 26% respectively. UBS also stated that the lithium ore market is in a "rebalancing" state, but currently it is still in a state of oversupply. If price sentiment rises too quickly, the current balance may also be temporary. Goldman Sachs also mentioned that the current scale of oversupply is still significant and it is not yet time to announce the end of the "bear market".
Waiting for demand side signal
Some news from the industry also shows a trend towards balanced development of supply and demand.
Pilbara Mining Australia announced on Thursday that it has accepted a bid to sell spodumene concentrate for $1200 per ton prior to the online auction scheduled for next week. More importantly, the company stated that with this sales, the expected production for 2024 has been largely allocated, and the possibility of regular spot sales through the Battery Materials Exchange (BMX) within the year is unlikely.
(Source: Australian Stock Exchange)
According to public information, Pilbara Mining's last public auction was at the end of 2022, when the transaction price reached an astonishing $8575 per ton.
As the situation of oversupply gradually decreases, short selling lithium mining stocks has also become dangerous. According to statistics, the short positions of top lithium miners Yabao in the United States and Pilbara in Australia have exceeded one-fifth of the outstanding shares, equivalent to $5 billion. This also makes Pilbara the most bearish component of the Australian benchmark stock index.
From the performance of stock prices, this group of bears should have already felt the signs of market changes - the stock prices of Yabao and Pilbara in the United States both increased by nearly 20% in February this year.
However, for the issue of "lithium prices bottoming out", reducing production capacity alone is not enough. We need to see a rebound in demand. Matt Griffin, fund manager at Maple Brown Abbott in Sydney, said, "I suspect that lithium prices have hit bottom or are close to bottom. The signal we are currently looking for is an increase in demand, either electric vehicle demand exceeding expectations, or the battery supply chain entering a restocking cycle."