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ECONOMY | 01-06-2022 20:52

Lithium stocks shaken by Argentina’s pricing decision

Shares of lithium producers plunge after Argentina moves to put an end to alleged improper pricing practices by exporters, affecting confidence across the sector.

Shares of Asian lithium producers have plunged after Argentina decided to put an end to alleged improper pricing practices by exporters, affecting confidence across the sector.

Argentina’s Customs Agency has set a reference price of US$53 per kilogramme for lithium carbonate exports to prevent under-invoicing and improve transparency, according to the AFIP federal tax agency. 

Lithium stocks were also hit by the growing notion that prices of the material will peak after Credit Suisse Group AG joined Goldman Sachs Group Inc in forecasting a correction.

In Australia, Allkem Ltd fell as much as 15 percent, while China's Ganfeng Lithium Co retreated more than four percent before slowing its decline. Both have operations in Argentina.

The Latin American country is home to major mining projects for the metal, which is highly sought after as a key input for batteries and electric vehicles. The benchmark price "is essentially a mechanism for Customs to request price integrity for contracts where there is a large variation," Citigroup Inc analysts led by Kate McCutcheon wrote Wednesday.

Stocks fell across the region. Pilbara Minerals Ltd retreated more than 20 percent and Mineral Resources Ltd lost as much as 8.7 percent. China's Tianqi Lithium Corp fell more than six percent before trimming losses.

Lithium producers have benefited from a global surge in demand for electric vehicles, driving up prices and raising fears of shortages. Argentina currently has the largest portfolio of lithium projects in the world. Its lithium carbonate exports exceeded 27,000 metric tons last year, with around US$185 million.

However, some analysts have begun to forecast a peak in the market.

Credit Suisse analysts led by Matthew Hope said they believe "the lithium price rally is coming to an end and prices will begin to pull back" as it appears that the supply deficit will end. The firm cut target prices and ratings on Allkem and Pilbara, urging investors to take profits.

Its call comes just days after Goldman Sachs Group Inc forecast a "sharp correction" in lithium prices over the next two years. The Wall Street firm believes the bull market in battery metals "is over for now," according to a May note, as investor euphoria has led to oversupply.

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by Jackie Edwards, Bloomberg

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