Sentiment in China is improving, inventory levels have fallen and actual supply growth has disappointed so far this year, they said in a note to clients on Monday.

The lithium carbonate spot price has bounced 30 per cent to $27.50/kg and hydroxide by 20 per cent to $30/kg, according to Morgan Stanley.

“The turning point in lithium markets? Yes, it looks like that for now at least,” the analysts said.

“After a 5-month and 70 per cent sell-off, China’s lithium spot price appears to have found the way up again.”

However while lithium chemicals are gaining, the spodumene concentrate price has continued to fall and is sitting around $4050 a tonne.

The broker noted China’s electric vehicle sales and battery production were growing again but cathode and battery cell producers were still not fully back buying in the spot market.

“But sentiment is clearly improving and their lithium inventories appear to have eroded,” analysts said, noting China’s carbonate producers still had one to two months of inventory on hand.

Shares in lithium miners rallied on the positive outlook. Pilbara Minerals closed 4.5 per cent higher at $4.60, while Core Lithium finished 6.7 per cent at $1.03 and IGO shares lifted 3.5 per cent to $14.89.

Morgan Stanley said it expected the lithium market to become tighter for the remainder of 2023 and saw “upside risk” to its second half base case forecast of an average China lithium carbonate price of $US25/kg.

Canaccord Genuity said it believed Chinese pricing for lithium had almost bottomed out and was leading to a change in equity sentiment.

“We think that recent lows of ~$US23,000/t ($34,000/t) are not sustainable, nor reflective of the overall market and outlook . . . and on a medium-term view, see reasons to be optimistic for a Chinese led recovery from 2H23,” analysts said.

“We don’t think the market is as weak as China pricing (and investor sentiment) might suggest.”

Lithium bosses such as Pilbara Minerals chief Dale Henderson expect lithium prices to soften further over the next three months but remain bullish on the long-term outlook.