UBS Revises Lithium Price Outlook

Investing.com — UBS has updated its lithium price outlook due to weaker-than-expected electric vehicle (EV) demand. The brokerage’s assessment of auto production, EV sales, and battery demand has resulted in a lowered forecast for lithium demand through 2030, affecting producers and related equities with reduced price targets for several companies.

Analysts at UBS attribute the lower demand primarily to a slowdown in global EV sales growth, especially in significant markets such as China, the European Union, and the United States.

The decrease in automotive battery demand is exacerbated by the rising popularity of plug-in hybrid electric vehicles (PHEVs), which use smaller batteries than fully electric vehicles (BEVs).

Consequently, UBS now predicts a 10% reduction in automotive battery demand through 2030, accounting for both diminished EV sales and the trend toward smaller battery sizes.

UBS has subsequently revised its global lithium demand outlook downward by approximately 10% through the end of the decade.

While certain lithium supply projects are being deferred, the supply reduction is insufficient to offset weakening demand. Analysts explained, “While we note some supply is being deferred, it is not enough, and as a result, we mark-to-market spot prices and downgrade CY25/26E chemical and spodumene prices by up to 23%.”

Although large-scale production cuts have not yet occurred, low prices may prompt production delays and deferment of growth projects. If spodumene prices remain around $770 per ton for the next year to year and a half, additional shutdowns are anticipated.

Despite these challenges, strong supply is expected to lead to a surplus, which UBS predicts will persist until at least 2027.

The future dynamics of the lithium market will likely depend on a better understanding of African primary lithium supply and Chinese primary and conversion supply, both integrated and non-integrated. These areas are poised to be crucial in shaping the supply-demand balance and will significantly impact the duration of the current market downturn.

The downgrades in lithium price forecasts bear significant implications for lithium producers, particularly those on the brink or currently in production.

UBS analysts have downgraded several key players in the lithium sector. For example, Pilbara Minerals now has a price target reduced to $2.30 per share, with UBS maintaining a “sell” rating, reflecting anticipated lower earnings and cash flow due to decreased lithium prices.

UBS has also downgraded Mineral Resources (ASX:MIN) with a new price target of $43.00 per share. This company is expected to be greatly affected by the predicted lithium market downturn due to its dependence on iron ore and lithium prices.

The brokerage has issued “neutral” ratings for IGO (ASX:IGO) and Liontown Resources (ASX:LTR), with revised price targets of $5.40 and $0.85 per share, respectively. Although these companies face challenges from the weaker lithium market, their exposure is not as significant as that of other firms.

Meanwhile, UBS maintains a “buy” rating on Patriot Battery Metals (TSX:PMET), with a price target of $1.00 per share. Despite the broader market challenges, UBS sees promise in Patriot’s Corvette project in Canada, which is positioned for long-term growth in the lithium sector.

UBS has adjusted its lithium price forecasts to account for slower demand growth, sufficient supply, and the current pricing trend. The brokerage has reduced its forecasts for lithium chemical and feedstock prices by up to 23% for the 2025 to 2027 period due to expected surpluses from resilient supply against slowing demand.