2 high performing ASX lithium shares tipped by top fund manager

As EVs begin to roll out across the world, demand for lithium to run their batteries is booming.

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asx share price increase represented by golden dollar sign rocketing out from white domes of lithium

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ASX lithium shares have been among the top performers on the S&P/ASX 200 Index (ASX: XJO) and All Ordinaries Index (ASX: XAO) over the past year.

Though many factors impact a company’s share price, ASX lithium shares have enjoyed strong tailwinds from the soaring price of lithium.

This time last year, a tonne of lithium was selling for about US$130 (AU$171). Today lithium is trading at north of US$210 per tonne.

We’ll take a look at 2 top-performing ASX lithium shares held by boutique fund manager Ausbil Investment Management in a tick. But first…

What’s driving lithium prices higher?

Though lithium is still below its all-time highs of some US$290 per tonne seen in June 2018, the price has been marching steadily higher for 12 months now.

Demand is growing alongside the expansion of electric vehicles (EVs) and home and grid-scale battery storage for renewable sources, both generally reliant on lithium-ion battery technology.

On the other side of the equation is a notable lack of increasing supply to meet the ramp-up in demand.

Wang Xiaoshen is the vice-chair of Ganfeng Lithium Co, a major producer of lithium chemicals. According to Xiaoshen (quoted by Bloomberg), “The industry is rapidly growing and we have a very upbeat forecast on lithium consumption. I can’t rule out the possibility for lithium prices to bounce back to the 2018 level.”

Strategic research provider BloombergNEF forecasts a 900% increase in demand for lithium-ion batteries by 2030.

Xiaoyi Liu, an analyst at Shanghai Metals Market, also believes lithium prices could run higher from here, saying, “Prices for lithium chemicals will still have room to rise by the end of the year, demand for EV batteries and energy storage is still strong.”

Fund manager says lithium demand will outpace supply

Ausbil’s global resources fund has had a banner 12 months by most any standards, returning 88.3% over the past year.

James Stewart is the co-portfolio manager of Ausbil’s global resources fund, alongside Luke Smith.

As quoted by the Australian Financial Review, Stewart says part of his secret to success is “staying on top of the news but importantly, not always reacting to it”.

Pointing to rapidly increasing commodity demand in other parts of the world, Stewart says China is no longer the key driver for commodity demand:

Now the rest of the world is really driving commodity demand which will only increase as the US, Europe, Asia and South America open up. So there’s this huge restock that’s going through global economies… The volume of electric vehicles sales going through Europe and the US is phenomenal.

As mentioned up top, the ramp-up in demand for many commodities, including lithium, hasn’t been met with increased exploration and new production. According to Stewart:

Over the last seven years, we’ve had almost no investment in new projects and particularly over the last 12 to 18 months with COVID-19, there’s been no investment at all… Because of the terrible environment over the last few years with weak pricing, driven by supply, but also weak demand from COVID, it means there’s been no investment in lithium.

The Ausbil global resources fund is weighted towards ASX lithium shares, with Stewart believing demand will continue to outpace supply over the next 6 to12 months.

In fact, 2 of the funds top 5 long positions are Pilbara Minerals Ltd (ASX: PLS), 5.7%, and Orocobre Ltd (ASX: ORE), 6.2%.

How have these 2 ASX lithium shares been performing?

Shareholders of Pilbara and Orocobre will have little to complain about over the past 12 months.

Orocobre shares have gained around 170% since this time last year, while ASX 200 listed Pilbara shares have gained an eye-popping 500%. Over that same time, the ASX 200 has gained around 24%.

Year to date, both ASX lithium shares have continued to outperform. The Orocobre share price is up around 43% so far in 2021. The Pilbara share price is up almost 67%.

Of course, there are no guarantees these shares will continue to trounce the benchmark in the future.

One risk to consider before investing in ASX lithium shares is a potential oversupply of lithium down the road, as happened in the leadup to the 2018 lithium price crash.

Another is the development of economically viable alternate clean energy sources, like hydrogen fuel cells.

Happy investing!

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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 Bruce Jackson.

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