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Goldman got lithium forecast wrong: Benchmark

Benchmark

Leading lithium consultancy Benchmark Mineral Intelligence has rebutted a recent Goldman Sachs report that threw shade on lithium’s future.

In early June, Goldman Sachs released a bearish forecast on the commodity’s prospects, with the company suggesting “the battery metals bull market as over for now”.

“(There has been) a surge in investor capital into supply investment tied to the long-term EV (electric vehicle) demand story, essentially trading a spot-driven commodity as a forward-looking equity,” Goldman Sachs said.

“That fundamental mis-pricing has in turn generated an outsized supply response well ahead of the demand trend.”

Benchmark Mineral Intelligence has weighed in on the situation, highlighting several reasons it believes Goldman Sachs is wrong in its predictions.

Benchmark questioned Goldman Sachs’ lithium supply assessment.

“Goldman sees the most ‘significant’ new lithium supply as coming from China, where companies have invested in new hard rock and brine projects,” Benchmark said.

“But known domestic Chinese spodumene and other hard rock resources are low quality, a key reason why there has been an increasing reliance by Chinese converters on Australia for supply instead.

“China’s deposits of lepidolite, which Goldman expects to add significant new supply volumes, may have the potential to help bridge the deficit in coming years but are unlikely to lead to oversupply.”

Benchmark indicated “capacity does not equal supply”, using the example of Tianqi Lithium’s Kwinana lithium hydroxide refinery in Western Australia.

“Kwinana … was announced in late 2016 and (was) set to start at the end of 2018. Instead, first production occurred in the second quarter of this year, with full production targeted for 2025,” Benchmark said.

“Building upstream of the EV battery supply chain takes time and rarely goes to plan,” Benchmark chief executive Simon Moores added. “For Tianqi it’s been the best part of a decade.”

Benchmark suggested prices would remain elevated because “new lithium supply comes at a higher cost base”, while the fact lithium is underpinned by contract pricing should also be considered.

“It’s important to remember that there is no one single lithium price,” Benchmark said.

Finally, Benchmark said it was also critical to fully understand lithium’s chemical capacity and downstream component before suggesting the market would remain in structural shortage until 2025.

“The lithium market will balance over the next few years, but it’s unlikely that an unprecedented ramp-up of marginal, unconventional feedstock will fill the deficit,” Benchmark said. “It is also unlikely that demand will weaken significantly.

“It will be a touch-and-go market balance, but there will not be the structural oversupply that Goldman Sachs is predicting.”

Read Benchmark’s response here.

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