Battery metal prices have collapsed amid concerns about growing supply and weaker-than-expected demand for electric vehicles. Nickel, lithium and cobalt prices have slumped 60 per cent, 80 per cent and 65 per cent from their cyclical peaks respectively.
But Macquarie’s 44-year veteran nickel watcher, Jim Lennon, told The Australian Financial Review this week that unexpectedly high Chinese demand and potentially slower growth in Indonesia might help rebalance the market.
Goldman acknowledged that margin pressures have generated a degree of supply rationing over the past quarter, including supply cuts worth 10 per cent and 2 per cent of global lithium and nickel demand respectively.
However, it noted that there was still a significant pipeline of supply which was set to hit the market just as Western demand for electric vehicles was downgraded. That means the projected surpluses for lithium and nickel markets this year remain sizeable, according to Goldman.
“Whilst rationing supply growth has been the key focus on price path, it is important to recognise that Western EV-tied demand downgrades are also working to partially offset supply effects,” Mr Snowdon said.
Further to fall
Goldman is now predicting that lithium markets will be in a 150,000 tonne surplus this year and 336,000 tonne surplus in 2025, meaning further supply cuts will be needed to reduce both projections.
The broker cut its forecast for China lithium carbonate prices by 17 per cent and now expects them to average $US11,100 tonnes this year, down from $US13,376 a tonne. Goldman’s 12-month target is now $US10,000 a tonne, from $US11,000 a tonne previously.
Goldman also believes nickel has seen a phase of price-related supply rationing. Since November, the broker has cut its production estimates by 80,000 tonnes, equating to 2 per cent of global supply.
While that has reduced Goldman’s projected 2024 surplus from 328,000 tonnes to 224,000 tonnes, it still remains the third-largest surplus faced by the nickel market in the last decade. Goldman forecasts an average 240,000 tonnes a year surplus over the 2025 to 2027 period.
Most of the supply growth is expected to come from low-cost producers in Indonesia and China as high-cost projects face pressure from falling prices. The broker said it expects Indonesian and Chinese refined assets to add around 180,000 tonnes per year of supply in the form of metal and nickel sulphate in 2023 to 2026.
Goldman noted that the history of the nickel market suggests that a “substantial and sustained price overshoot” into the cost curve will probably be necessary to materially rebalance the market.
The broker’s 12-month price target on London Metal Exchange nickel sits at $US15,000 a tonne, which it estimates would move around 190,000 tonnes of class one supply into loss-making territory.
“The continued scale of midterm surplus projections suggests this degree of rationing is required to sustainably rebalance the market,” Mr Snowdon said.
