Zimbabwe lithium ban sparks warnings of supply deficit this year

The ASX lithium stocks were travelling along nicely as it was thanks to the rebound in prices for the battery material on signs that that a supply deficit was emerging.

But then along comes an immediate ban by Zimbabwe on the export of lithium concentrates and all other raw materials, including recalling those in transit.

While the government cited, shock horror, “malpractices and leakages” in the Chinese- dominated industry, it has to be said Zim has been moving in the direction of forcing through a processing value-add requirement on the resources sector, not unlike Indonesia.

As it is, the export of lithium concentrates from Zim’s low-grade lepidolite operations was due to be banned by January 2027 anyway under a decree dating back to 2002. The Chinese owners have responded with some value-add processing projects, but not big enough or fast enough it seems.

So given the value-added intent, the immediate ban on lithium concentrate exports should not really come as a shock.

But the immediate ban does come at a time when the global market is moving into widely forecast supply deficit thanks to the EV and battery energy storage thematic, and China’s decision to rein in its own lepidolite operations under its anti-involution policy, whatever that means.

Zim accounts as much as 10-12% of global supply but Canaccord and others reckon the supply hit from the ban would be more like 6-7%. Naturally enough, lithium prices that have been on the march since June last year have found another reason to move higher.

“We think this will have a material impact on the lithium market in the short term,” Canaccord said.

“We had previously been forecasting a balanced market in 2026, which assumed a full restart of Chinese lepidolite operations (~130ktpa LCE or from January 1).

“Noting that there remains significant uncertainty around a full restart (or timing), and the impact of the Zimbabwe export suspension, this would move our 2026E market balance to a deficit.”

ASX Stocks:

Zim’s action gave lithium prices a 7% boost (lepidolite rose 12%). Prices were running hot anyway post the Chinese New Year shutdown on strong demand and the emerging supply deficit fears.

Past cycles have shown that even a small deficit can fuel massive price increases – remember US$80,000/t for battery grade lithium carbonate and $US8,000/t spodumene in 2022.

Prices are now US$23,470/t for lithium carbonate and $US$2,255/t for the spodumene concentrates shipped out of the Western Australian hard-rock operations.

So prices are a long way from record levels. But it has to be remembered that lithium carbonate was all of US$9,000/t in October last year while spodumene has come up from $US600/t last June.

Our producers that saw off the downturn like PLS, IGO, Liontown (LTR) and Mineral Resources (MIN) are again enjoying fat margins. And it shows in their share price performance of late.

The developers and explorers have not taken off to the extent that the producers have but the rub-off on them can’t be too far off.

That means that PMT and Wildcat (WC8), mentioned here recently as the two ASX stocks most likely to be the next to be bring their projects into production, are poised to be joining the share price celebration seen in the producers.

Bill Beament’s Develop (DVP) can be added to the list, remembering he said recently that Develop’s parked-up Pioneer Dome lithium project in WA could be producing direct shipping ore within six months if it so desired.

“I’ll remind you the capital cost of that whole project is about A$35–$40 million to get up and running,” Beament said.

“And when you start understanding what those DSO rates are per tonne … it’s just about as good as gold mining.”

Core (CXO), which was forced to park-up its Finniss project in the Northern Territory during the downturn, is another beneficiary. It has just sold 5,100t of spodumene to Glencore for US$2,023/t from the Finniss stockpile while it works away at funding a re-start of the operation.

Explorers are next in line for a re-rate should the lithium market continue to hold at these higher levels. There are not as many as there was in the previous lithium price boom, with many of them heading off to do other things, principally in gold.

But as Beament noted, the rebound in lithium prices means the sector is just about as good as gold mining at the higher prices. Gold explorers have run hard in response to gold’s record price run. Lithium explorers could well be next.

That they look undervalued compared with the new-look lithium market is reflected in the modest market caps they have, particularly those with a resource under their belt.

US-focussed Venari (VMS) is an example. Its clay-hosted Red Mountain project in Nevada hosts a 3Mt lithium carbonate-equivalent resource.

It has got a lot more work to do. But with prices now comfortably back over US$20,000/t, the company’s $21m market cap is kind of interesting.

Tungsten:

As impressive as the advance in a broad range of commodity prices has been in recent times, the standout performer has been the speciality metal tungsten.

The price of the critical but obscure metal has gone ballistic, breaking out from its long-run average of about US$280 a metric tonne unit (10kg) to more than US$1,700/mtu recently.

China controls about 80% of the market and has been holding back supplies to meet its own needs while also playing funny buggers with export controls in its tit-for-tat tariff war with the US.

As it is, the US is hell bent on weaning itself of Chinese supplies to the point where it wants to ban Beijing-labelled supplies – and those from Russia, Iran and North Korea – from January next year on national security grounds.

It might not be able to do so given it outsourced its tungsten requirements to China and others a long time ago. And there just isn’t the supply slack in the western world supply chain to make up the difference.

BMO Capital says critically low stock levels mean prices are likely to stay at meteoric levels for the rest of the year and possibility well into 2027.

It is against that backdrop that ASX-listed EQ Resources (EQR) – a producer of the hardest metal from mines in Queensland and Spain – has soared from a $150m market cap in July last year to $1.15 billion this week (24c a share).

Canaccord reckons there is still upside in the stock.

It has just initiated on the stock with a 40c price target which if achieved would make for a company with a $1.91 billion market cap. Using a flat tungsten price of US$1,450/mtu, it estimated EQR could generate annual EBITDA of $370m and free cash flow of $271m from FY2027.

Investors are starting to look around the junior developers and explorers for leverage to the tungsten craze. So expect to hear more from them as they step up work (and promotion) on their projects to be part of the solution.

Norm Seckold’s NZ gold explorer Minerals Exploration (MEX) could be one to benefit.

While its focus remains on high-grade gold up near the 13Moz Waihi mine in the North Island and in the Otago goldfield down south, the literature shows its tenements include coverage of the historic Glenorchy tungsten mine. Any old tungsten mine is of real interest in a US$1,700/mtu tungsten market.