UBS Forecasts Global Lithium Demand to Rise in 2025
UBS has updated its outlook on the lithium market, noting a shift in the sector's dynamics. The firm reported that lithium supply is expected to exceed demand throughout 2024, leading to a surplus, with prices having fallen by approximately 10-30% since the beginning of the year. However, in response to lower prices, supply constraints and a slowdown in the development of new mining projects have been observed.
As a result, UBS now forecasts that supply growth will lag behind demand, predicting a reduction in the global surplus and that the market will reach equilibrium by 2027-28. Despite the potential for constrained production to quickly resume, which could limit price increases in the near term, UBS expressed increasing confidence that the market has moved past the bottom of the cycle.
Reflecting this improving outlook, the firm raised its short-term price targets for spodumene for 2025 and 2026 by 7% and 17%, respectively, to $800 and $850 per ton.
In terms of stocks, UBS maintains a sell rating on Australian lithium producers Pilbara Minerals Ltd (ASX:PLS), Mineral Resources Limited (ASX:MIN), and Liontown Resources Limited (ASX:LTR). The firm upgraded its previous rating for Independence Group NL (ASX:IGO) to neutral and retained its buy rating for Pilbara Minerals Limited (ASX:PMT) as a longer-term option.
The revised supply forecast for 2025 reflects the impact of price-focused restrictions and project delays, reduced by approximately 18% or 300,000 tons of lithium carbonate equivalent (LCE). UBS expects global production growth to slow to 15% year-on-year, reaching around 1.5 million tons of LCE in 2025. This deceleration is particularly pronounced in China, where production is anticipated to decrease by 3% year-on-year towards 2025. In Australia, despite project expansions, the pressure from low prices continues.
On the demand side, UBS estimates that global lithium demand will increase by 18% year-on-year in 2025, reaching 1.5 million tons of LCE. While this is a solid rate, it is slower than the over 20% annual growth seen in previous years. The firm highlighted various factors influencing demand, including potential U.S. policies under a possible second Trump presidency, EU carbon emission targets, tariffs on electric vehicle imports from China to the EU, and the increasing importance of energy storage systems (ESS).
The price outlook for spodumene, a key source of lithium, has been raised for the coming years; however, the firm remains cautious, suggesting that the potential resumption of constrained production could limit price increases.