UBS Equities-China Lithium _Lift lithium earnings and price targets_ Han-117455518

ab26 August 2025Global ResearchChina LithiumLift lithium earnings and price targetsLifting our lithium price assumption amid supply disruptions in ChinaWe lift our estimates for China's lithium carbonate average spot prices by 3%/33%/20% to Rmb77k/100k/90k/t in 2025E/2026E/2027E and hence raise earnings estimates and upgrade our ratings for China's lithium stocks. Our more optimistic view is driven by our expectation for further disruptions in China's lithium supply in the medium term due to the mining rights investigation. In our base case, we cut 2025/2026 global lithium supply by 1%/5% while lifting 2027 supply by 2% and expect lithium supply surplus to account for 8%/1%/3% of lithium demand in 2025E/2026E/2027E. Anticipate a slowdown in upstream China lithium producers' capex We see capex for China's lithium producers slowing down by end-Q125 (Figure 2Capex of China's lithium producers (Rmb mn) vs. China's spot price for Li2CO3), at an average lithium carbonate (LCE) price of Rmb75.8k/t and net below-zero cash position (Figure 3Net cash position of China lithium producers (Rmb m)). On top of that, we expect capex to continue decelerating in Q225, at an even lower average LCE price of Rmb65.4k/t. Moreover, YoY growth of China's lithium monthly demand has been outpacing that of China's lithium monthly supply (Figure 4 Gap betwen China's lithium suply (YoY %) and lithium demand (YoY %) vs. spot price for Li2CO3). The YoY capex growth rates of China's battery players have been outpacing those of upstream lithium producers (Figure 5Capex gap betwen China's batery producers (YoY %) and lithium producers (YoY %) vs. spot price for Li2CO3 during the same period & Figure 6Capex gap betwen China's batery producers (YoY %) and lithium producers (YoY %) vs. spot price for Li2CO3, with China batery producers' CAPEX lead 1 year). The mismatch between upstream (lithium supply) and downstream (lithium demand, i.e., battery) investments could structurally drive the next upcycle in 2027E and beyond. Hence, we expect the worst of the lithium downcycle has passed. Raise earnings for China's lithium companies; upgrade ratings for select stocksWe raise earnings of China's lithium companies by 5-250% in 2025-27E, but expect lower upside potential for QSLI due to its solid profit amid the lithium price downcycle (contribution of potash profits and lowest cost among global lithium producers), whereas we foresee much higher potential upside for Tianqi and Ganfeng due to their high exposure to the lithium business. We lift our price targets for: 1) Tianqi from Rmb29.20 to Rmb54.72, upgrade from Neutral to Buy; 2) Ganfeng A from Rmb29.50 to Rmb49.62, upgrade from Sell to Buy; 3) Ganfeng H from HK$18.10 to HK$32.75, upgrade to Neutral from Sell; and 4) QSLI from Rmb20.64 to Rmb23.40, maintain Buy. Our pecking order is Tianqi > Ganfeng - A > QSLI > Ganfeng - HWe like Tianqi Lithium most in our lithium coverage as we consider it best placed to capture the potentia