Will the Pilbara Minerals share price crash in 2023?

Miner on his tablet next to a mine site.

Miner on his tablet next to a mine site.

The Pilbara Minerals Ltd (ASX: PLS) share price has already seen plenty of movement this year. Could the ASX lithium share see a crash this year?

Between the start of 2023 and 25 January 2023, it rose 36%. However, since then it’s down by 24.5%. That means since the start of the year it is only up by 3%.

It’s not surprising that the share price of a commodity business can move up and down so much. The profitability of commodity businesses is highly dependent on the resource price – if costs don’t change much month to month, then any extra revenue for that production is largely just extra profit.

But, the same is true in reverse, if the resource price falls then it can wipe off the profit.

We have already seen a crash in the Pilbara Minerals share price this year. I’d certainly call a fall of around 25% in less than two months a crash.

But, in terms of the lithium price, there is a weakening sentiment according to some experts.

Citi downgrades outlook

As reported by The Australian, the broker Citi has suggested that lithium prices are going to be weaker than expected in the short-term because of “perceived weakness in electric vehicle demand in China” and destocking by other players in the lithium value chain.

It’s worth mentioning what has been happening in China for Tesla Inc (NASDAQ: TSLA). The electric vehicle giant decided to cut prices for all versions of its Model 3 and Model Y cars in China by between 6% to 13.5% in January, according to reporting by Reuters.

But, it was also noted by Reuters that in February, Tesla increased prices of ‘performance’ and ‘long-term’ versions of its Model Y mid-size sports utility vehicles (SUV) in China.

Getting back to Citi’s prediction, lithium prices had fallen 30% this year and Citi thinks the price will be US$40,000 per tonne in the next three months compared to the previous forecast of US$60,000. In the next six to 12 months, the lithium price is expected to drop to US$50,000, down from its previous prediction of US$55,000, according to The Australian reporting.

It’s no wonder the Pilbara Minerals share price is weakening if analysts are suggesting that the lithium price is going to be weaker than forecast.

Citi explained:

We believe the bear run in lithium prices is likely to continue for few more weeks before stabilising.

Most of the large battery producers have strong production plans for 2023 which suggests battery companies are likely to restock from 2Q’23 onwards. This should provide eventual support to lithium prices.

My thoughts on the Pilbara Minerals share price

I don’t think the ASX lithium share is going to go back down to around $2. But, for Pilbara Minerals to return to trading above $5 this year I think we’ll need to see a recovery of the lithium price.

The company has a promising future in my opinion, with its plans to become more involved in the lithium value chain.

The post Will the Pilbara Minerals share price crash in 2023? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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