JP Morgan: Lithium prices face short-term downward pressure, while ESS demand supports mid-term outlook. Maintain "Overweight" rating on Ganfeng Lithium Group (01772).

JPMorgan released a research report on China's lithium industry, stating that lithium carbonate futures prices have dropped 10% this month to 140,500 RMB per ton, while Chinese lithium companies have seen their stocks fall 9% to 11%, underperforming the Hang Seng Index's drop of 0.6% this month. Although there is uncertainty regarding the resumption of production at the Jiangxi Jiana Lithium Mine operated by Contemporary Amperex Technology (03750), which should support the view of tightening supply, Shanghai Nonferrous Metals Network (SMM) revised its inventory classification, resulting in a reported inventory increase of about 94,000 tons compared to previous estimates, shifting the market focus back to inventory and demand validation. The new framework still indicates inventory reduction, but the overall increase in inventory was surprising to the market, leading to a sentiment-driven sell-off since September 4. JPMorgan believes that lithium prices have a short-term opportunity to decline to 130,000-135,000 RMB per ton, but the mid-term outlook remains supported by downstream demand, especially from energy storage systems (ESS). The firm maintains an "Overweight" rating on Ganfeng Lithium Group (01772) with a target price of HKD 70, and a "Neutral" rating on Tianqi Lithium Corporation (09696) with a target price of HKD 36. The firm mentioned that the resumption schedule for the Jiangxi Jiana Lithium Mine has not yet been confirmed, and the expected volume arriving from Zimbabwe is projected to normalize in the fourth quarter. JPMorgan noted that after the environmental assessment for the Jiangxi Jiana Lithium Mine was withdrawn on August 26, discussions about its resumption have become clearer. Their channel survey indicated that there had been a discreet resumption of production at the Jiangxi Jiana Lithium Mine, but it has now halted again, and the resumption schedule is still subject to further regulatory and environmental review and remains unconfirmed. Other lithium mica projects in Jiangxi that require renewed permits may also have longer resumption timelines than expected. Regarding Zimbabwe, JPMorgan anticipates that as miners advance shipments ahead of the complete ban on lithium concentrate exports on January 1, 2027, port arrivals will gradually normalize in the fourth quarter. SMM released revised lithium carbonate inventory data on September 4, reporting that inventories increased from the revised 76,000 tons in May to 169,000 tons as of September 3, indicating an increase of about 94,000 tons. JPMorgan believes that the inventory increase is largely due to a broader sampling coverage and reclassification, rather than a deterioration in the underlying inventory trend. The new inventory data still shows a week-over-week reduction of 5,600 tons. Therefore, the firm views the new data as part of short-term sentiment and volatility resistance, but the directional interpretation remains consistent with ongoing inventory reduction. On the downstream demand front, JPMorgan pointed out that ESS remains a key highlight, with global ESS battery shipments maintaining strong momentum in July, and the industry is still expected to meet or exceed the firm's forecasts for the fiscal year 2026. Key discussions are shifting toward the sustainability and pace of growth in 2027, especially as China's ESS growth normalizes from a high baseline and the potential for a slowdown in shipments in the second half of 2027. The data from October to November should provide clearer insights into the resilience of demand for 2027, and prior to that, lithium prices may remain sensitive to supply news and positions.