Goldman Sachs sends shockwave through battery metals markets

Prices of lithium stocks cratered midweek after US-based investment bank Goldman Sachs issued a prediction that key battery metals are heading for a sharp correction.

A sector that has seemingly been on a long upward tear was stopped in its tracks by the Goldman Sachs report forecasting cobalt and lithium in particular, were due for a slide that could last all of two years.

In the report, Goldman Sachs metals analysts Nicholas Snowdon and Aditi Rai pronounced that “the battery metals bull market is over for now”.

Long term — fine, they said, with lithium prices potentially soaring again in 2024.

Behind the correction are high levels of investment in these sectors in recent years, which has led to an oversupply in the shorter term.

The bank predicts the correction will hit lithium and cobalt prices later this year and worsen in 2023.

Lithium price predicted to lose more than half its value

The analysts expect current lithium prices of just under US$54,000/t will plunge to US$16,000/t in 2023.

As far as cobalt is concerned, the price will go down from around US$78,500/t now to an average US$59,500/t next year.

However, the nickel price should remain relatively stable. (It should be remembered that nickel has many uses outside batteries — especially stainless steel.)

The Goldman Sachs concerns centre around the recent and near term forecast large rises in output.

The analysts expect a 33% per annum increase in lithium output between 2022 and 2025 and a 14% uptick in cobalt production on average each of those years.

Most of the extra lithium is expected to come from Chinese and Australian hard rock projects, which explains why ASX-listed spodumene stocks took a dive after the bank’s forecasts were made public.

Goldman has erred in the past

However, such dire warnings do not always come true — as Goldman Sachs itself would know.

In July 2015, then head of commodities research at Goldman Sachs, Jeffrey Currie, sent alarm bells ringing in the precious metals space with a note saying that gold was headed below US$1,000/oz — a price area it had not seen since 2009.

It caused great consternation in the gold sector, but Currie in 2015 was wrong: gold has remained above US$1000/oz ever since.

But his forecast did panic investors and confidence in the gold stocks took a blow.