Have ASX Lithium stocks hit rock bottom?

The Galaxy Resources Limited (ASX: GXY) share price is near 52-week lows, is it time to buy?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ASX lithium stocks have continued to struggle in making ground despite the wide acceptance and development of electric vehicles and lithium-ion batteries.

Why are lithium stocks falling?

Like most material stocks, lithium producers are heavily dependent on the lithium spot price. Below is a chart of the latest battery-grade lithium prices.

Battery Grade Lithium Spot Prices

To add more context to the prices, lithium carbonate min 99.5% Li2CO3 battery grade was trading at peaks of roughly RMB$160,000 – $180,000 per tonne back in late 2017. As prices have almost halved, producers such as Galaxy Resources Limited (ASX: GXY) and Orocobre Limited (ASX: ORE) will continue to see margins shrink. This may eventually put pressure on long term contract prices when they are due for renewal.

In a Fastmarkets report, it cited battery-grade lithium carbonate and hydroxide prices weakened on thin buying activity.

Have lithium stocks bottomed?

While I believe lithium stocks are great value, there is still more pain to be felt in the short term. Sentiment is still poor and lithium spot prices are still subject to poor demand/supply conditions.

At the same time, the electric vehicle industry is still in its early days with many vehicle manufacturers stepping up R&D to produce new electric vehicle models.

Government policy is also an important aspect of the demand for electric vehicles. We have yet to see much governmental support for electric vehicles, but the main leaders in this area are China, Canada, and Norway. For example, the Canadian government has recently announced a new $5,000 incentive program (that is not yet completed) to encourage more Canadians to buy zero-emission vehicles.

Foolish Takeaway

My favorite ASX lithium pick would be hard rock and brine producer Galaxy Resources given its cheap P/E valuation of only 5 and projected 2019 spodumene production to reach as high as 210,000t.

I also like Pilbara Minerals Ltd (ASX: PLS) for its large spodumene deposits and ambitious goal of becoming one of the top three lithium raw material producers by 2020, as well as Kidman Resources Ltd (ASX: KDR).

However, I believe more time is needed for ASX lithium stocks to make an appealing investment case. Investors need to see improvements in the lithium spot price, which has yet to make a meaningful reversal. Demand and supply conditions are still subdued with lower offer prices combined with a slow market. European and US spot prices also remain flat on the back of most lithium consumers covered by long-term contracts.

I believe more patience is needed and will keep ASX lithium shares on my watchlist for now.

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Three businesspeople leap high with the CBD in the background.
Share Market News

Boom! ASX 200 blasts to new record highs

ASX 200 investors just sent the benchmark index into uncharted territory.

Read more »