Lithium prices are hitting new hurdles, according to Rothschild & Co Redburn, which warned that a return to market surplus in 2027 will weigh on prices and undermine the investment appeal of major producers.
The updated demand and supply modeling from analyst Mazahir Mammadli points to three converging pressure factors, including a halt in battery overproduction, a slowdown in electric vehicle sales growth, and limited increases in battery sizes, as available models with smaller batteries are selling better than the larger ones.
The central focus of the bearish scenario revolves around the dynamics unfolding in China, where export tax incentives for batteries and their components are gradually being phased out starting in 2027.
Rothschild & Co Redburn notes that the sector is ramping up production in 2026, outpacing lithium demand, but asserts that 'the cessation of this oversupply next year will lead to a slowdown in lithium demand'.
Regarding electric vehicles, the company sees weak sales in China in Q1 and a depressed North American market, which will reduce global electric vehicle sales growth to 14% by 2026, even with sustained momentum in Europe and emerging markets.
Considering the increasing supply in China, Argentina, and the USA, Rothschild & Co Redburn expects lithium carbonate equivalent prices to drop to '$15–16/kg by the end of the year'.
Against this backdrop, the company has downgraded Albemarle from 'Buy' to 'Neutral', setting a target price of $188 per share, implying a decline of about 5%.
The rating for SQM remains at 'Neutral' with a revised target price of $83 per share. Rothschild & Co Redburn concludes that 'the risk-reward ratio for lithium company stocks is not as attractive as it once was'.
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