By Alice Uribe
SYDNEY--Lithium is one of Janus Henderson Investors' top commodity bets for 2024, despite the metal having a rocky run in recent months as investors fret that the energy transition is happening more slowly than thought.
Prices of lithium have fallen to around two-year lows as supply, including from Australia, outpaces demand for a metal that's a key component of electric-vehicle batteries and other technology such as smartphones. Electric-vehicle sales in the U.S. have plateaued in recent months, wrong-footing some automakers that had anticipated stronger demand.
Tougher conditions for EV makers have reverberated through the lithium market, prompting some miners to slow investments in new supply to protect cash. Last month, Australia's Core Lithium said it is undertaking a review of its operations in response to a more than 40% drop in prices of spodumene since the start of November.
Daniel Sullivan, head of global natural resources at Janus Henderson, said the pullback in lithium prices had been surprisingly quick but the market now appears to be close to a bottom. He also expects more deals in lithium mining, especially in Australia.
That view explains why lithium is well-represented in Janus Henderson's global natural resources fund, which has 724 million Australian dollars (US$487 million) of assets under management.
"We've been a bit more nimble about how we approach it, and part of what we've done is had less exposure to the major companies, which are mostly going to reflect production," Sullivan said in an interview.
In the U.S., electric cars and trucks are piling up on dealer lots, causing auto companies to reassess their investment plans. Data suggest it is taking longer to sell an EV than a gasoline vehicle, reversing the trend of a year earlier. Drivers of this shift include the relatively high price of the technology at a time when budgets have been squeezed by rising interest rates and concerns about their ability to recharge them easily.
The weakness in demand risks creating a supply overhang. Benchmark Mineral Intelligence projects a 30,000-metric-ton surplus in the global lithium market this year.
Sullivan said the market may normalize in the early part of the year, creating conditions for a recovery. "I don't think it will be a very long slump," he said.
Funding remains available to lithium explorers and developers, although this could change if lithium prices remain low for another 12 months, Sullivan said.
Australia is the largest producer of lithium, with rising EV production turning a handful of small miners such as Pilbara Minerals and Liontown Resources into multibillion-dollar companies. As cash piles built on sales of lithium, some producers sought to do deals that could diversify their operations and give them additional scale.
Arcadium Lithium--created through the merger of Allkem with U.S.-based Livent--will begin trading on the New York Stock Exchange this week. Another U.S. company, Albemarle, not long ago aborted a deal to acquire Liontown after Australia's richest person built a large stake in the Australian miner.
Deals worth more than US$1.3 billion were announced in Australia's lithium mining sector last year, up from US$56.4 million in 2022, according to Mergermarket.
"There's a lot more of that to happen," Sullivan said of M&A.
Write to Alice Uribe at alice.uribe@wsj.com
(END) Dow Jones Newswires
January 03, 2024 19:16 ET (00:16 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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