The “cash crop” of the year appears to have hit a snag. A recent note from Morgan Stanley has caused a broad-based sell-off among several major Australian lithium firms, including Pilbara Minerals and Alkem. Stock value for the former fell by around 5.4%, while the latter experienced a drop of 3.9% as trade commenced early on Thursday, October 13th.
The financial firm added that there was a significant drop in lithium exports and prices from Chile’s Sociedad Quimica y Minera (SQM). One of the world’s largest producers, SQM registered a month-on-month decline of 10% in its volumes and a decline of 11% in its prices.
SQM officials have advised the Morgan Stanley team that flat prices are still likely as 2022 draws to a close and that the recent price and volume drops are simply an anomaly caused by a specific shipment. Likewise, the additional supply of lithium sulfate sent to the company’s recently opened hydroxide plant in China could have muddled the numbers.
What Else Could be Fuelling the Price and Volume Drop?
According to a number of analysts, including Javier Martinez de Olcoz and Vincent Andrews, the product mix could be part of the reason behind the recent decline.
At present, there has been a notable decrease of 12% on the month in export volumes for the pricier high-purity lithium carbonate. However, prices are down in all categories, as seen in the 17% price drop for other carbonates and the 5% decrease for lithium hydroxide.
A number of analysts also believe that SQM may be holding back part of its capacity to sustain spot prices in China.
This has resulted in a significant drop in the value of SQM shares which went down by 8.4%, the lowest it has been in three months.
No Need to Panic
Despite this, analysts say that there is no need to worry about lithium. Indeed, the recent surge of lithium prices sent the mining sector a clear message that demand for the mineral remains strong and individual corporate inventories remain tight.
The Morgan Stanley note added that while the company has mapped some amounts of new supply, investors and industry professionals will continue to see a tight market well until the end of the year as companies consider their need to restock.
Lithium prices are also expected to trend lower in 2023 as supplies expand to ease the current tightness in the global marketplace.