Reopening bets spur market-leading rally in China lithium stocks

HONG KONG (BLOOMBERG) – China’s lithium stocks are on a tear, buoyed by bets that a relaxation of virus curbs will ease supply chain disruptions and boost demand from electric-vehicle makers.

Shares of major producer Tianqi Lithium have rallied 66 per cent after hitting a low in late April, outstripping a 6 per cent advance by the benchmark CSI 300 Index during that period. Ganfeng Lithium and Chengxin Lithium Group surged about 30 per cent and 40 per cent, respectively, in onshore trading.

The jump in lithium shares underscores expectations for demand to climb when automakers ramp up production as Shanghai gradually reopens. Investors are positioning for more gains after producers of the metal posted bumper profits in the first quarter on the back of a 79 per cent increase in prices.

“The bearish tone on the battery material sector has been easing as markets anticipate the supply chain to normalize” when Shanghai gradually reopens, said Horace Chan, an analyst at Bloomberg Intelligence.

The recovery may support inflows into the sector, he said. Beijing began loosening mobility curbs in several districts from Sunday after authorities said its outbreak was under control.

Other cities like Shanghai also began unraveling lockdown measures. Lithium, which is used to manufacture electric-vehicle batteries, will see stronger demand in China in the second half as carmakers boost output to meet annual targets, state-backed researcher Beijing Antaike Information Development wrote in a note this month.

JPMorgan Chase this month upgraded Tianqi Lithium to overweight and raised its price target to 121 yuan per share, 23 per cent higher than Monday’s close.

It cited the lithium industry’s growth potential, the company’s earnings outlook, improving cash flow and high-quality upstream assets as the reasons. But, some analysts warn that lithium shares aren’t a one-way bet.

As prices of the metal surge, this is likely to amplify costs along the supply chain and squeeze the margins of battery manufacturers and electric carmakers. In China, BYD, XPeng and Li Auto have already raised the selling prices for their cars.

“Our main concern is that high lithium price is actually a negative” toward sentiment for electric vehicles and the battery supply chain, said Dennis Ip and Leo Ho, analysts at Daiwa Capital Markets in Hong Kong.

The shares offer a “short-term trading” opportunity as there’s “a clear mismatch” between the valuation of the stock and metal prices. Goldman Sachs Group sees a “sharp correction” in lithium prices over the next two years, and the battery metals bull market is “over for now,” according to a note on Sunday.

There’s an “outsized supply response well ahead of the demand trend,” but after 2024, prices for battery materials may still soar again, the bank said.


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