Overnight US Lithium Stocks Lead Gains; Lithium Sector Operating Logic Sees Transition of Old and New as Geopolitical Conflict May Raise Sector Pivot Again?

Currently, the operational logic of the lithium sector is undergoing a transition. The valuation upside previously driven by the energy storage industry narrative is shifting toward a supply-demand fundamental logic, dominated by rigid supply constraints and synchronized demand expansion amid energy crises and geopolitical maneuvering.

Since the start of the year, recurring geopolitical conflicts, particularly the escalation of the U.S.-Iran standoff, have shocked the crude oil supply side. The prolonged blockade of the Strait of Hormuz has triggered production halts in some Middle Eastern oil fields, pushing the mid-term oil price baseline to elevated levels.

In this context, market demand for lithium has become increasingly prominent due to its cost-effectiveness and strategic value. Furthermore, some analysts indicate that if the conflict in the Middle East persists, demand for power batteries—the largest component of demand—is poised for a trend-based recovery.

Meanwhile, media reports suggest that Chile is about to break its tradition of relying on copper as its sole economic pillar by hosting a dedicated one-day lithium forum for the first time at next week’s annual World Copper Conference. This move signals the country is accelerating its resource diversification strategy.

The primary impact of the U.S.-Iran conflict on the lithium sector is not the narrative of renewable energy substitution, but a direct disruption to the diesel supply chain for Australian lithium mines—a production-halt risk exposure that the market has yet to fully price in. Australia accounts for roughly 30% of global lithium capacity, and its production process is entirely dependent on diesel. With nearly 90% of its diesel imported and inventories covering only 15 to 30 days, the risk of energy supply disruption is critical.

Furthermore, Zimbabwe's export ban on lithium ore has heightened policy uncertainty, while domestic lithium salt plants' scheduled maintenance in January and February, coupled with stalled production restarts at Chinese mines, has further constrained supply elasticity.

Consequently, expectations for the lithium market in 2026 have shifted from a slight surplus to a tight balance or even a structural deficit. This shift serves as a key driver behind the rally in lithium prices and lithium mining equities.

The rise in stock prices is also driven by mainstream institutions' downward revisions of lithium supply forecasts. Recently, several investment banks have predicted that lithium prices will enter an upward trajectory as the lithium supply remains tight.

Morgan Stanley released a research report lowering its 2026 lithium supply forecast to approximately 400,000 tons (down from the initial estimate of roughly 500,000 tons at the start of the year). The bank expects market supply to tighten further during the peak season from May to August, with a deficit emerging starting in September. Overall, Morgan Stanley expects lithium prices to trend upward in the second half of 2026, noting that demand elasticity will manifest when prices exceed 250,000 yuan per ton.

Citi noted that the latest lithium dataset shows weekly inventory accumulation increased this week. The bank expects that as supply impacts from Zimbabwe likely emerge, the market may shift toward destocking; therefore, recent pressures should gradually alleviate within the next 3 to 4 weeks. Addressing concerns over year-to-date demand for new energy vehicle (NEV) batteries, data from Real Lithium shows that NEV battery installations grew 18% year-on-year in the first two months of 2026, primarily driven by robust demand for commercial vehicles and an increase in battery capacity per vehicle. Given that monthly supply-demand dynamics should tighten in the coming weeks, the bank recommends that investors buy lithium.

First, attention must be focused on the demand side, including the persistence of the ongoing U.S.-Iran conflict, as high oil prices will drive up demand for power batteries. Macquarie Bank predicts that, fueled by robust demand for energy storage, global lithium demand will maintain a compound annual growth rate (CAGR) of over 20% through the end of this decade, even as electric vehicle growth slows.

On the supply side, focus should be on changes in the supply landscape resulting from Zimbabwe's newly implemented lithium export controls. Other factors include the impact of energy supply disruptions caused by geopolitical conflicts on Australian lithium mining capacity, as well as uncertainties surrounding the production restart and capacity release of CATL's large-scale lithium mines following their suspension due to permit expirations.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.