ASX lithium shares are surging on Tuesday. Here’s why

It’s a good day on the charts for ASX lithium shares today. Let’s take a closer look.

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A lithium battery with blue power background, indicating positive share price movement for clean ASX lithium miners

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ASX lithium shares are surging today following a strong overnight rally in lithium-related peers on Wall Street.

High-profile overseas lithium players, including global chemical manufacturer and lithium miner Albemarle and electric vehicle (EV) maker Tesla, rallied 6.83% and 4.38%, respectively.

In morning trading, Galaxy Resources Limited (ASX: GXY)Pilbara Minerals Ltd (ASX: PLS) and Orocobre Limited (ASX: ORE) pushed a respective 4.16%, 3.27% and 5.10% higher.

Emerging ASX-listed players and explorers, including Vulcan Energy Resources Ltd (ASX: VUL), Piedmont Lithium Inc (ASX: PLL) and Ioneer Ltd (ASX: INR), also opened higher, up 3.33%, 3.74% and 3.00%, respectively.

What’s driving ASX lithium shares higher?

Earlier this month, Forbes reported a potential “perpetual deficit” in lithium due to surging demand in electric vehicles (EV) and energy storage.

Forbes quoted bullish commentary from Credit Suisse, which had this to say: “Following production cuts (when the price crashed), the lithium supply glut has ended, and the market is now tightening as the EV revolution accelerates, supported by the global commitment to decarbonisation”.

Macquarie also provided its commentary in the report, saying: “We now forecast a wider market deficit for lithium in calendar 2021. The deficit is expected to grow in calendar 2022 and widen further in 2023 before some supply response starts to close the gap.”

Recent commentary out of Fastmarkets flags a similar supply tight narrative.

Fastmarkets reported that “lithium hydroxide prices in Asia remained firm, with suppliers reportedly struggling to meet demand while consumers prioritised the security of materials”.

The website quoted a producer as saying that everything needed to be settled before mid-June, “otherwise buyers can barely find anything on the spot market”.

Surging demand sees higher production from ASX-listed producers

ASX lithium shares have been quick to ramp up production or in some cases bring projects out of hibernation.

In Galaxy’s FY20 results, the company said it was operating its flagship Mt Cattlin mine at 60% of nameplate capacity.

The company opted for lower output in response to “soft market conditions in the sector for most of the year [FY20]”.

By early June, Galaxy was operating Mt Cattlin at full capacity and had upgraded its full-year guidance from 185,000 to 200,000 dry metric tonnes (dmt) to 195,000 to 210,000 dmt.

Similarly, Pilbara Minerals plans to grow its lithium production through the restart of its Ngungaju plant.

Pilbara said the restart would cost about $39 million and was expected to contribute approximately 180,000 to 200,000 dmt by mid-calendar year 2022.

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Motley Fool contributor Kerry Sun owns shares in Vulcan Energy. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Piedmont Lithium Inc. and Tesla. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. 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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