Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
Rising lithium demand powers Australian miners
Global demand for lithium has grown significantly in recent years and prices are expected to remain elevated, though analysts doubt whether the highs of 2016-17 will be revisited. Australian miners are set to reap the benefits of rising demand, with some analysts upgrading earnings for listed companies.
Due to its lightweight properties, lithium is a key component in the production of rechargeable batteries used in electric vehicles (EVs), renewable energy storage, and consumer devices such as mobile phones, laptops, and cameras.
Australia is the world’s biggest exporter of lithium. In 2020, 46 per cent of the world’s lithium came from Australia and exports of lithium are expected to contribute $9.4 billion in revenue to the Australian economy by 2023-24 according to new government forecasts. For June quarter 2022, total lithium exports surged to $2.63 billion, up $2.32 billion or 737 per cent from the June quarter 2021 according to data from the Australian Bureau of Statistics (ABS). From a state perspective, Western Australia has accounted for over 99 per cent of Australian lithium exports in each month since January 2021.
Most Australian lithium is exported to China, accounting for over 85 per cent of total value in each month of 2021 and over 94 per cent in each month of 2022 (year to date), according to the ABS. In June 2022, $1.13 billion worth of lithium was exported to China, accounting for 97 per cent of the total lithium exports for that month. Australian miners primarily extract spodumene concentrate, which is a lithium mineral derived from pegmatite and the most widely exploited lithium mineral source.
Recent run up in prices to be maintained
Lithium prices have jumped since 2020 due to rising demand. According to research house Fitch Solutions, lithium prices are expected to remain elevated in the short term and average higher than 2020 levels, though they are not expected to rise to the highs reached in 2016 and 2017 before the lithium price collapsed.
“We expect lithium consumption growth to outpace current supply developments. This is supported by strong government support in major economies to promote EVs and large-scale energy storage systems that will more than keep up with supply,” Fitch Solutions said in a recent research report, What Our Clients Want To Know: Global Lithium Outlook Amidst The Battery Boom.
“Within Li-ion batteries, lithium’s use in batteries featuring varying cathode chemistries will help insulate lithium demand from technological advances and coinciding changing preferences for cathode chemistries,” the report stated.
Fitch Solutions Lithium Price Forecasts
The run up in the lithium price has lifted earnings for many Australian miners. UBS recently upgraded earnings forecasts for Mineral Resources, IGO and Allkem due to increases in spot prices.
“We remain constructive on lithium with Buy ratings on IGO, and Mineral Resources and Allkem, as record high spot prices drive exceptional cashflows,” UBS said in a recent research note. “We have upgraded nearer-term prices for concentrate and chemical reflecting continued strength in spot pricing and expectations of a meaningful recovery in China demand following COVID-related disruptions in 1H 22.”
Several other analysts are upbeat on Mineral Resources. Consensus ratings from the Wall Street Journal reveal 10 analysts out of 11 surveyed in August have a Buy or Overweight rating on the company.
Some experts doubt rally will last
Not all research houses are less bullish on lithium prices. Goldman Sachs recently issued a note stating that the bull run has ended for lithium. “We expect lithium prices to continue to correct for the rest of the year and remain under pressure from increasing supply over the next few years,” Goldman Sachs said in a May 29 battery metals research note, The end of the beginning. “The battery metals bull market has peaked.”
But the negative impact on the lithium didn’t last long. Benchmark Mineral Intelligence, a leading global commodities research house, rebutted Goldman Sach’s forecast in its own research note, Lithium oversupply? Not likely – five main reasons why. According to Benchmark, lithium prices are likely to continue rising. Benchmark rejected Goldman’s view that “significant” new lithium supply will come from China, where companies have invested in new hard rock and brine projects.
“Known domestic Chinese spodumene and other hard rock resources are low quality, a key reason why there has been an increasing reliance by Chinese converters on Australia for supply instead,” Benchmark said.
