Lithium Stocks Are a Buy After Latest Selloff

On Nov. 6, shares of lithium producers Albemarle ALB, Livent LTHM, and SQM SQM fell on a broker downgrade. We see no reason to change our fair value estimates for these companies; we view all three lithium producers as materially undervalued. Albemarle stock and Livent stock both trade in 5-star territory at roughly 40% of our respective $300 and $38 fair value estimates. SQM stock trades at a little less than 50% of our fair value estimate of $95 per share. Along with Lithium Americas LAC and Lithium Argentina LAAC, we view these stocks as the most undervalued among our specialty chemicals coverage.

The downgrade is predicated on the price of lithium falling to $15,000 per metric ton in 2026, which the broker views as the marginal cost of production. We think this price is 25% below the marginal cost of production, which we view as $20,000 on an all-in sustaining cost basis. As a result, even if lithium prices returned to a marginal cost of production structure, we think prices of $15,000 per metric ton are unlikely to occur for long, as this would cause high-cost supply to shut down and exit the market, leaving it undersupplied and boosting prices in fairly short order.

Bullish on Lithium Prices Long Term

We remain bullish on lithium over the long term. While spot prices have fallen in the second half of the year, we think prices will stabilize heading into 2024, likely at around $20,000 per metric ton. However, we forecast prices will rise in 2024 due to double-digit demand growth, the end of inventory destocking among battery producers, and new supply delays. We think this sets up a shift back to undersupply conditions, leading to higher prices. We forecast lithium carbonate spot prices will average $30,000 per metric ton in 2024, above current prices of a little less than $23,000.

We expect lithium prices, producer profits, and producer stock prices will remain volatile. However, we view the volatility as creating strong opportunities for investors. In our view, the current market valuations price lithium as a little-to-no-growth commodity with a flattening cost curve, which is in line with the broker’s downgrade thesis. Additionally, lithium producer shares trade well below our marginal cost pricing scenario. In our marginal cost scenario, we assume lithium prices fall to $20,000 per metric ton and remain there for the rest of the decade. As a result, we see an excellent opportunity.