ASX lithium shares: Short-term pain for long-term gain?

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If you hold shares in an ASX lithium producer (or many), you might have had a glance behind-the-scenes at your company last week.

Many of the market’s favourite battery-material producers dropped quarterly reports in recent sessions, and there appears to be a common theme among many – lower lithium prices.

That’s likely not news to readers. Lithium prices have been falling for a while now – since late last year in fact.

Interestingly, many ASX lithium companies reporting last week were adamant the value of the battery-making material will recover lost ground, and then some.

So, could the sector face short-term pain and long-term gains? Let’s take a look.

What’s been weighing on lithium prices?

Simple supply and demand has been dragging lithium prices lower in recent months.

China has seen demand for electric vehicles (EV) slump amid the removal of subsidies, while Chinese car dealerships have been cutting prices of traditional cars ahead of the introduction of emissions standards. Meanwhile, previous inventory stocking means some would-be buyers probably aren’t topping up their lithium stocks.

It’s an observation noted by both Liontown Resources Ltd (ASX: LTR) and Pilbara Minerals Ltd (ASX: PLS) last week.

Liontown told investors Chinese spot prices for lithium hydroxide fell by more than 30% over the three months to March. International spot markets, on the other hand, dropped around 25%.

Pilbara Minerals saw its realised spodumene concentrate sales price fall 15% last quarter to around US$4,840 a tonne. Mineral Resources Ltd (ASX: MIN) also saw its average realised lithium battery chemicals revenue dump 14% to US$56,996 a tonne, exclusive of China VAT.

But not all ASX lithium shares have been so impacted, as evidenced by IGO Ltd (ASX: IGO). It said in its quarterly release:

The lithium market is currently experiencing a high level of volatility, which has resulted in the emergence of a price disparity between lithium product streams.

Are ASX lithium shares playing a long-term pricing game?

Well, yes and no. Pilbara Minerals, for one, expects lithium prices to continue softening this quarter. Though, CEO and managing director Dale Henderson said a potential resurgence is still on the cards for the second half of 2023, continuing:

We remain very positive on the structural deficit for lithium.

He believes recent investments by global giants in the lithium and battery space, as well as the long-term trend of EV adoption, are evidence of such a deficit.

Meanwhile, Liontown commented in last week’s update:

The medium to long term outlook remains very attractive with structural supply deficits and ongoing robust demand for electric vehicles and battery storage devices.

But not all are so bullish. Barrenjoey head of mining research Glyn Lawcock said potential prices could “moderate at the top end of the cost curve in 2023 and 2024” amid a supply glut, the Australian Financial Review reported last month

The broker is said to have slashed its 2023 spodumene price forecast to US$3,966 a tonne – a 43% cut. Meanwhile, its 2024 forecast was dropped 50% to US$2,500 a tonne.

Looking forward, however, it expects the market to be back in deficit from 2027.

The post ASX lithium shares: Short-term pain for long-term gain? appeared first on The Motley Fool Australia.

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