Lithium demand is going 30x, and Macquarie reckon these 6 stocks are in the hot seat

What do you get when you mix a megatrend, eye-watering demand and constrained supply? 

Lithium. 

The International Energy Agency (IEA) has crunched the numbers on two possible scenarios: the Stated Policies Scenario (STEPS), which accounts for the policies that have been adopted as of the end of September 2022, and the Sustainable Development Scenario (SDS), which accounts for the United Nations energy-related Sustainable Development Goals. 

"In both scenarios, EVs and battery storage account for about half of the mineral demand growth from clean energy technologies over the next two decades, spurred by surging demand for battery materials," according to the IEA.  

"Mineral demand from EVs and battery storage grows tenfold in the STEPS and over 30 times in the SDS over the period to 2040."

That's a lot of demand, and Australia is in the box seat. 

In this wire, I explore the supply side shortfall that will support spot prices and list the six Aussie lithium names Macquarie rates as Overweight right now.

Industry in catch-up

Despite a dour economic outlook, demand for lithium continues to outstrip supply. And much of this is fuelled by a supply shortfall in China. 

"According to SMM's lithium carbonate inventory data, which covers more than 30 lithium refiners and more than 70 cathode makers in China, LCE inventory levels declined further in October, down 25% to 18.1kt."

This supply shortfall has translated into spot prices. 

Chinese lithium carbonate prices are now up approximately 120% since the start of the calendar year, while China's battery-grade lithium carbonate and lithium hydroxide prices are up 115% and 174% respectively. Spodumene has also taken off, surging 140%. 

Play it

If you want to gain exposure to lithium, the names below are a good place to start. Macquarie has an Overweight rating on all of them. 

Small-cap player GL1 leads the way among the Aussie developers with an upside of 90% at current spot prices. LTR and CXO meanwhile boast upside of more than 65% and 15% respectively, according to Macquarie. 

Multiples, meanwhile, are holding up. 

"Most lithium producers boast strong cash-flow generation both on our forecasts or in a spot-price scenario, with PLS having the highest FCF yield of 20% for FY23E," Macquarie notes. 

"We expect lithium developers to also enjoy strong cash flows after the capital spending phase in the near term."

So what's your favourite Aussie lithium stock? Let us know in the comments section below.