Lithium price fell. Lithium Stocks Rise = Dead Cat Bounce?

Share prices of lithium mining companies are booming even as sales of lithium electric vehicles are falling, a disruption that should raise alarms among investors.

Over the last four weeks, leading lithium producer Arcadium’s share price has risen 21%. Emerging Australian producer Liontown is up 33% and Chile’s biggest lithium company, SQM, is up 11%.

These price increases came as lithium prices continued to weaken, leading some observers to believe that miners are repeating a “dead cat bounce,” meaning today’s rise will be short-lived as “dead cats” don’t bounce off.

One explanation for the gains is that miners over-sold down when the price of lithium collapsed last year, falling 67% from $45,000 a ton of the metal in its carbonate form to about $14,500 a ton today.

Another reason for the share price rise could be that investors are confident that demand for lithium from battery manufacturers will eventually grow quickly with the introduction of electric vehicles in the world.

100% US border tax

The problem is that negative events are outweighing the positive developments in electric vehicles, including the imposition of a 100 percent border tax (tariff) on Chinese-made electric vehicles to protect the U.S. vehicle industry.

There is also a reluctance among motorists to switch from internal combustion engine (ICE) vehicles to battery power, and when tempted they now prefer a hybrid rather than a fully electric vehicle, which means less lithium is needed because hybrids have smaller batteries .

Citi, an investment bank, warned investors this week that there was a large surplus in the lithium market of about 6% of total supply.

Over time, the excess will be absorbed, but before that happens, the price of the metal is expected to fall by about 17% to $12,000/t towards the end of the year, but could fall even further in the next three months.

Although prices are likely to rise in the future, a significant recovery is not expected until the end of next year at the earliest.

“We reinforce our pessimistic stance on lithium and maintain our 0-3 month price target of $10,000/t for lithium salts,” Citi said.

“Despite the current low price, supply cuts have been muted and suggest a lower price environment is needed to rebalance the physical market.”

Citi said sentiment toward electric vehicles in countries other than China has worsened in recent months, while Chinese electric vehicle exports are threatened by protectionist measures.

ICE rises while EV weakens

“Recent headlines in the global electric vehicle market have not been very positive for lithium and the battery metals complex,” Citi said.

“We are seeing some automotive OEMs scale back their electric vehicle targets as weak sales force automotive OEMs to focus on traditional combustion engine powertrains.

“Ford has cut battery orders to reduce capital expenditure due to mounting losses in its EV division, while Mercedes will continue to produce internal combustion engine and hybrid vehicles into the 2030s, subject to demand.”

“Volkswagen said customers want more plug-in hybrid vehicles, including in China and the US, while Toyota is seeing huge demand for hybrid vehicles.”

Amid increasing uncertainty about the prospects for electric vehicles and their lithium batteries, lithium mining companies’ share prices have risen, which appears to suggest a market disruption.