UBS sees deeper China lithium supply disruptions lifting prices

UBS has upgraded its lithium price forecasts for 2025-2028, raising spodumene by 9-32% and lithium chemical prices by 4-17%, citing significant supply disruptions in China that could impact up to 15% of global supply. These disruptions stem from strict Chinese government investigations into mining rights and suspensions of key operations like CATL's Jianxiawo mine. Coupled with robust global EV sales and strong battery energy storage demand, UBS anticipates the lithium market will be near-deficit in 2026, though its long-term price outlook remains below consensus for both spodumene and chemical prices.

Analysis

UBS has materially upgraded its lithium price forecasts, citing significant supply-side disruptions in China that could affect up to 15% of global supply. The bank raised its 2025-2028 price forecasts by 9-32% for spodumene and 4-17% for lithium chemicals. This revision is driven by a stricter-than-expected execution of mining rights investigations by the Chinese government, leading to suspensions and idling at key facilities, including CATL’s Jianxiawo mine, which is anticipated to be offline for approximately 12 months. This supply constraint is occurring alongside robust demand, evidenced by 26% year-over-year global EV sales growth in June and a 117% year-over-year increase in the global battery energy storage (BESS) project pipeline. Consequently, UBS projects the lithium market will approach a deficit in 2026. Notably, while the bank's near-term spodumene price outlook is now above consensus, its long-term forecasts for both spodumene and chemical prices remain below consensus, suggesting UBS views the current supply shock as a significant but not permanent recalibration of the market.

Key Decisions for Investors

• Given the anticipated supply squeeze and resulting higher price forecasts, investors may consider overweighting lithium producers, particularly those with operations outside of China that are insulated from the ongoing regulatory investigations.
• The primary driver is Chinese policy, so investors should closely monitor developments related to mining rights and compliance enforcement in China, as any change in government stance could rapidly alter the supply outlook.
• Note the divergence between UBS's near-term bullishness and its below-consensus long-term view, suggesting a need to re-evaluate positions if and when disrupted Chinese supply begins to return to the market, likely post-2026.
• While the focus is on supply, the thesis remains dependent on strong demand; therefore, monitor key demand indicators like global EV sales figures, especially from China which accounts for 64% of the market.