myGrilloCOM | Citi is bearish on lithium — at least for the near term. But it’s giving some stocks big upside

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Citi is bearish on lithium — at least for the near future. That’s because China’s huge electric vehicle market is showing signs of slowing, the bank said, citing the country’s removal of EV subsidies and Tesla’s suspension of production at its Shanghai plant. Lithium is a critical component of electric vehicle batteries. On top of that, demand in Europe has been slowing, thanks to high electricity prices and an economic slowdown, the bank added. “[We] remain cautious on lithium commodity as … EVs sales could be softer in 2023 after the subsidy expires and China lithium spot price may face headwinds beyond 1Q23,” Citi said in a Jan. 3 note. But the bank isn’t turning fully negative on lithium, saying it’s bullish on its long-term outlook. It expects lithium demand to increase its compound annual growth rate by around 20% by 2030, and that its supply will struggle to catch up. Names to watch Citi named three stocks to watch despite its cautious lithium outlook. Its most preferred name is U.S.-based Albemarle , which it gave a price target of $295, or 38% upside. Citi also likes Livent Corporation , which it gave a $27 target price, or 42% upside. But it warned that Livent, being a pure-play lithium producer, is a stock sensitive to changes in the lithium market. “Lithium has the potential for high growth, driven by demand for battery applications. Therefore, changes in the pace of adoption for electric vehicles or electronics, due to energy prices or some other factors, could have significant implications for long-term lithium supply/demand,” Citi analysts wrote. The bank added that as Livent’s business is heavily reliant on its lithium resource in Argentina, the Salar del Hombre Muerto, any political or economic risks in the country would affect the firm. For instance, Argentina recently imposed an export tax on certain products including lithium, Citi noted. Citi also named Sociedad Química y Minera de Chile , the world’s largest lithium producer, which soared 58% in 2022. Citi downgraded the stock from “buy” to “neutral” in mid-December, giving it a price target of $92 — with upside of about 20%. But the bank expects more risks to the downside for the firm, citing price volatility as a main risk to that target. “Prices of SQM’s products are linked to international prices, which vary significantly due to supply/demand dynamics,” Citi said.