ASX lithium shares have rallied significantly following President-elect Joe Biden's call for a clean energy revolution in the US. In November, the Pilbara Minerals Ltd (ASX: PLS) share price is up 70% to an 18-month high of 73 cents, the Galaxy Resources Limited (ASX: GXY) share price is up 60% to a 22-month high of $2.21 and the Orocobre Ltd (ASX: ORE) share price is up 50% to a year-to-date high of $3.98.
Could ASX lithium shares be making a comeback in FY21 or is this just a short-lived period of hype?
Lithium spot price remains weak
Despite a global commitment to reducing carbon emissions, this has not yet translated to higher lithium prices. Fastmarkets have provided the following updates for November:
- China's battery-grade lithium carbonate prices moved up following increasing demand from producers
- China's industrial-grade lithium carbonate prices firmed up on tighter supply
- China's lithium hydroxide prices drifted lower on limited domestic demand
- Asia battery-grade lithium prices kept unchanged this week under a flat spot market
Despite the small improvement, lithium prices remain at multi-year lows. In Orocobre's September quarterly update, the company revealed that it had been selling lithium carbonate at US$3,102/tonne while the cost of sales were US$3,974/tonne. Current prices are not sustainable for lithium producers. However, there are many redeeming factors that could explain the recent price run.
Well-capitalised and ready to meet demand
Despite the lithium market and material prices rolling over in 2018, producers have maintained strong cash positions to survive the market trough.
In many cases, producers have curbed production to adapt to market conditions. Galaxy's flagship site, Mt Cattlin, has production settings moderated to 50-55% of its nameplate capacity. It noted that Q4 was expected to be the best quarter for 2020 sales due to recovering demand and some supply-side interruptions. Galaxy is examining the potential to ramp up Mt Cattlin to full rate, dependent on product inventory and spot prices.
Positive medium to long-term outlook
The global lithium market has suffered a setback due to COVID-19. However the medium to long-term outlook remains positive and continues to be further reinforced with increasing government regulation and funding. ASX lithium shares have lifted as a result of slight improvements in the lithium market and anticipation of the significant changes to come.
Following the easing of COVID-19 restrictions, Germany and France's electric vehicle (EV) sales grew 100% and 50% respective year-on-year in May. This demonstrates the immediate impact of new subsidies on consumer EV appetite.
After 12 consecutive months of year-on-year (YoY) declines in neighbourhood electric vehicle sales (NEV), China reversed its downward trajectory. It has recorded growth during July, August and September of +23%, +28% and +73% YoY respectively.
To add to this potential turning point in the lithium market, President-elect Joe Biden also has his own plans for renewable energy in the US. This includes re-joining the Paris Climate Accords, a reduction in fossil-fuel subsidies, eliminating solar tariffs and a historic $400 billion investment into clean energy and innovation over 10 years.
