The ASX-lithium stocks have been on the tear in the last three weeks. The reason is simple enough.

Lithium prices have headed higher. After being smashed by 80% in CY2024, prices for the battery material have been in recovery mode in response to production cutbacks in Australia and elsewhere, and fears in China that its domestic producers faced being wiped out if the lows reached in December persisted much longer.

Still, Australia’s leading producer Pilbara Minerals (ASX:PLS), and the US giant Albemarle, have been harbouring fears that the recovery in lithium prices was not fully appreciated by equity markets.

It is a sore point for both of them because they are the respective markets leaders and have become heavily shorted stocks in the belief by those taking up the positions that lithium prices had no hope of recovering due to over-supply.

As much to put the squeeze on the shorts as anything else, the pair separately decided to hold auctions for unallocated spodumene concentrates – a price discovery mechanism away from the potentially unrepresentative prices posted on the Chinese market platforms.

Albemarle is yet to conduct its auction but Pilbara has just reported that the one it scheduled for next Monday has been parked up in preference for its acceptance on Thursday of a pre-auction bid for 5,000t of 5.5% concentrate of $US1,106/t, equal to $US1,200/t on a benchmark 6% basis.

The Chinese markets have been quoting 6% material at around $US1,050/t, itself up from the December lows of $US850/t. So if Pilbara wanted to go through the auction process (its last one was in 2022 when prices were $8,000/t plus) to demonstrate the market was in an under- appreciated recovery mode, it has achieved its purpose.

That it decided to take a pre-auction bid also suggests that there was a depth of interest in securing the supply, countering commentary in recent times that the market is awash with lithium. The supply glut is not as bad as some think is the suggestion.

Having said that, no one is suggesting the lithium market is about to take off. Pricer forecaster Benchmark Minerals said last week it was expecting prices for concentrates to hover around $US1,000/t, and lithium carbonate around $US15,000/t.

The $US1,200/t price achieved in Pilbara’s pre-auction compares with the current $US1,250/t average futures price in the Chinese market suggesting there is more upside to come.

The recovery in the lithium market has been sweetly timed for Kathleen Valley developer Liontown (LTR).

It recent had a $750 million loan facility pulled because the banks went weak at the knees in response to their price forecaster reducing its price forecast for concentrates to $US950/t. This week Liontown has come out with a smaller $550 million funding package minus some of the original banks.

Forecasting group Adamas Intelligence commented that the recovery in prices has some lithium bears already calling a dead cat bounce.

But said it said lithium prices were due for a relief rally given the precipitous decline last year in the face of otherwise strong demand.

“Market participants and industry sources suggest that 2023’s inventory buildups are being drawn down. In light of strengthening fundamentals, today’s historically attractive price levels should encourage strategic buying in the weeks ahead,’’ Adamas said.

SYRAH:

Syrah’s (ASX:SYR) ability to pull in yet more funding – this time $98 million – with the ongoing support of its major shareholder AustralianSuper stands as testimony to the non-China world’s view that the battery anode material is indeed critical/strategic.

But graphite prices remain at miserable levels which is why the Syrah raising – it allows its Mozambique mine to keep ticking over and supports its value-adding downstream push in to active anode material in the US – had to be put away at a dilutive 55c a share compared with the pre-raising market price of 70c a share.

Still, the serious concerns about how the forecast demand growth for the anode material for lithium ion batteries will be met in coming years has not gone away. It is a thematic that AustralianSuper for one clearly endorses.

The answer to the supply challenge is higher prices to incentivise more production, ideally outside the control of the dominant, by a country mile, Chinese supply chain.

China’s grip on the supply chain is what worries governments around the world. Batteries for electric vehicles are graphite-heavy and China is eyeing off achieving global EV dominance and to do so, it is prepared to use graphite as a weapon.

Late last year it weaponised graphite (in its natural form as distinct from the filthy business of producing it in a synthetic form) by implementing curbs on exports under “national security” concerns.

China said the move, which has distorted the graphite market since, was “conducive to better safeguarding national security and interests”.

The export controls, and sustainability concerns on synthetic material, has rightly set alarm bells ringing at big auto industries in the US, Europe & the UK, Japan and Korea. Again, the answer is higher (incentive) pricing to remove the China risk.

KINGSLAND:

It is against that backdrop that Kingsland Minerals (ASX:KNG) put its hand up for some (global) attention.

It was last mentioned here on February 16 when it was at 22c. In Thursday’s market it had scooted off to 28c for a market cap of $16 million.

Little wonder. The company has just released a maiden resource estimate for its Leliyn graphite project in the Northern Territory.

After just 12 months of drilling a 4km section of a 20km-long outcropping schist, the maiden resource has come in at an inferred 194.6Mt at a grade of 7.3% graphite for 14.2Mt of contained graphite.

It is bigger than anything else in Australia and anything else in the world with the exception of Syrah’s Mozambique deposit (1 billion tonnes at 11.6%).

It is all well and good for Kingsland to have a monster resource on its hands.

But it now needs to confirm through metallurgical testwork that commercial grade concentrate suitable for the battery market can be produced from Leliyn’s fine flake material. First indications of testwork are expected in 4-6 weeks.

It stands as another potential re-rating event for the company.

Kingsland MD Richard Maddocks was not wrong during the week when he said that with such a large resource, he expects a step-up of outside interest in the project. Think battery makers and car groups.  

“We are in a great location with a deposit that outcrops, and it is only a 2-hour drive from Darwin. So it is not hard to imagine that if we progress the project it can become a supplier, especially to the to the Asian market,’’ Maddocks said.