Column: Top five contrarian commodity scenarios for 2025
Overall, the first part of 2025 is likely to be defined by a period of uncertainty.
Short bets worth billions against some of the world’s largest lithium producers are under threat as a supply glut shows signs of thinning.
UBS Group AG and Goldman Sachs Group Inc. have trimmed their 2024 supply estimates by 33% and 26%, respectively, while Morgan Stanley warned about the growing risk of lower inventories in China. The revisions come after lithium prices cratered last year as supply ran ahead of demand, with some producers cutting output.
Now, prices of the key material used to power electric vehicles are showing signs of a revival after the rout last year sent stocks spiraling and attracted short sellers. Bets against top producer Albemarle Corp. and Australian miner Pilbara Minerals Ltd. account for more than a fifth of their outstanding shares, or the equivalent to about $5 billion, according to data compiled by Bloomberg.
“Double-digit capacity has already been taken out of the lithium market and that usually is a sign that the commodity price is bottoming,” said Jun Bei Liu, a hedge fund manager at Tribeca Investment Partners in Sydney, who holds a long position in Pilbara. Shorting the company “is very dangerous” given signals of support for the metal’s price.
Pilbara Minerals said Thursday it accepted an offer for a lithium spodumene concentrate cargo ahead of a scheduled digital auction. This fills the company’s offtake book until December, the company said in a statement to the exchange. The contract “is an early sign of price improvement after the commodity’s recent plunge,” wrote Bloomberg Intelligence analyst Mohsen Crofts in a note.
Some short sellers may already have been caught after the two producers each climbed around 20% in February. The Solactive Global Lithium Index, which tracks the performance of 40 of the largest and most liquid lithium-related companies, jumped 10% in the same period, swinging from an almost 20% decline in January.
Investor bets against Pilbara Minerals are hovering around record levels at about 22% of free float, equivalent to $1.8 billion, making it the most shorted stock on Australia’s benchmark equity index, S&P Global data shows. For Albemarle, short interest stands at a similar proportion and represents $3.2 billion in market value.
“We’re seeing improved sentiment so a lot of those short positions will need to be covered,” said Ron Mitchell, managing director of Australian miner Global Lithium Resources Ltd.
Read More: After massive bust, global lithium market shows signs of life
Not everyone is convinced about the rebound, however. The surge in lithium contracts “should not be interpreted as the end of the bear market,” Goldman Sachs said in a note. The surplus remains sizable, it warned.
Still, other analysts expect prices to stabilize after those of lithium carbonate in China slid more than 80% from record highs in 2022. Capital markets firm Canaccord Genuity Group Inc. said in a note earlier this month that “sustainable” levels would soon return, while UBS doubts there will be further declines.
The broker also said the market is re-balancing after some miners curtailed production. Core Lithium Ltd. halted operations at its flagship lithium mine in January and is turning to uranium after a sharp rally in prices for the nuclear fuel. Meanwhile, Arcadium Lithium Plc said it will reduce output of spodumene, a mineral from which lithium is extracted.
“I suspect we are at or close to the bottom in lithium prices,” said Matt Griffin, a fund manager at Maple-Brown Abbott Ltd. in Sydney. “The sign we are looking for to get bullish on the space is an increase in demand — either through EV demand surprising to the upside, or a restocking cycle in the battery supply chain.”
(By Georgina McKay, Richard Henderson and Paul-Alain Hunt)
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