Lithium prices in 2024: Where are they headed and what does it mean for the hottest lithium stocks?

Investors are wondering where lithium prices in 2024 will go. Everyone knows where they are headed in the long-term, although this has not prevented price declines in 2023. Could things get worse before they get better? We can only speculate, although we thought we would look at three perspectives.

SQM is bearish on lithium prices in 2024

If the name SQM is familiar, you’d be right. We think most ASX investors would remember this company for its efforts to buy out Azure Minerals (ASX:AZS), although it is the world’s second-largest lithium producer.

At the end of last week, the company reported its earnings for the third quarter. These results disappointed investors who sent shares down by over 8%. SQM blamed its poor results on an excess of inventory as well as new supply coming on stream and soft demand that is not making up for it. SQM told its investors that despite the low prices, it would continue to run its facilities at full capacity, so that it is ready when purchasing rebounds.

Morningstar is (mostly) bullish

Morningstar reckons lithium prices will stabilise in the first half of 2024 and finish the year higher than what they began. It thinks inventory destocking and new supply delays will gradually catch up to current prices. Even acknowledging, the volatility, it thinks lithium is still a good investment.

‘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,’ said analyst Seth Goldstein.

Albemarle is going through the downturn

Albemarle is a US-based lithium producer that supplies many automakers including Tesla. Overall, it is expecting 40-55% higher sales in 2023 compared to 2022, although this is due to strong pricing in the first half of the year and the company admitted recent lithium market prices would catch up to it.

‘Last year, we saw dramatic increases in prices for lithium and spodumene. Due to the time lag on spodumene inventory, we realized higher lithium pricing faster than higher spodumene cost of goods sold,” said CFO Scott Tozier on the most recent earnings call. ‘This year is the reverse. As prices decline, we are realizing lower spodumene prices faster than lower spodumene costs, and we expect the majority of this impact is going to recur in the third quarter’.

2024 could be a transition year

‘We don’t have the confidence to know exactly ourselves what the price is going to do, but we do know this: We believe that the market will continue to be quite tight next year as well,’ President of lithium Eric Norris added during the call.

‘There’ll be significant demand growth in the market, and indeed, there will be more supply growth as well, but those two will be fairly matched, right? It will be a fairly tight market,’ Norris added.

So what does all this mean for investors?

The bottom line is that, lithium stocks will be volatile for the foreseeable future. Nonetheless, this does not mean that the long-term outlook is not intact, or that companies whose investment thesis depends on long-term demand are now dud companies. Investors should keep in mind that even though market pricing is volatile, most of the largest companies sell lithium on long-term contracts.

So, perhaps investors should hold some patience and just sit back and wait for the ‘long-term outlook’ for lithium to eventuate over the next 3-5 years. After all, investors in certain companies like Tesla and Liontown have made some spectacular profits. As long as the long-term outlook for lithium holds up, there’s no reason to believe similar opportunities won’t exist in the years ahead.

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