Lithium: Producer Shares Rally on High-Cost Supply Cut

Lithium stocks rallied on the news that battery producer CATL planned to adjust lithium production at its lepidolite-based mines in China in response to low prices. While many lithium producers have slowed or paused supply expansion plans or announced supply cuts in 2025, this marks one of the first major supply cuts in 2024. The news sent China lithium carbonate futures and spot prices higher, as this cut will move the lithium market closer to balance. The market is currently oversupplied, which has led index prices to fall to $10,500 per metric ton from a recent cyclical peak of $78,000 in November 2022.

Shares of US-listed lithium producers rallied in response to the supply cut and higher China futures and spot prices. At current prices, we view all five US-listed producers as materially undervalued, trading in 5-star territory and well below our fair value estimates. Our top picks are Albemarle ALB and Lithium Argentina LAAC. Albemarle trades at less than 40% of our fair value estimate of $225 per share, and it produces lithium at two of the lowest-cost resources globally, allowing the company to withstand the near-term pricing downturn. Lithium Argentina is the most undervalued producer under our coverage, with shares trading at more than an 85% discount to our fair value estimate of $20 per share.

We view lepidolite-based lithium production as among the highest-cost supply sources in the industry, and we are not surprised by the cuts here. At current prices, we estimate all lepidolite-based producers are losing money. Over the long term, this supply will likely be cut until prices rise to a breakeven level. For lithium, we estimate this level to be $20,000 per metric ton, which informs our medium-term price forecast. As a result, we see a far higher lithium price upside in the coming years as demand continues to grow while supply growth slows, bringing the market back into balance.