ASX 200 lithium shares in focus amid China supply shortage

Pilbara and Mineral Resources are on watch as China faces a lithium shortage.

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The S&P/ASX 200 Index (ASX: XJO) lithium shares are under the spotlight as China is reportedly facing a supply shortage.

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Analysts bullish on ASX 200 lithium shares

According to reporting by The Australian, analysts at Macquarie Group Ltd (ASX: MQG) are even more confident on the prospects about the lithium miners on the ASX as there is reportedly a lithium shortage in China.

This shortage is due to a "rebound in downstream demand and soft seasonal domestic supply as global demand grows".

It was reported that Pilbara Minerals Ltd (ASX: PLS) and Mineral Resources Limited (ASX: MIN) were favoured picks as Australian-based lithium miners.

Pilbara was a preferred pick due to its near-term growth potential.

The Liontown Resources Limited (ASX: LTR) price target was lifted to $2 because of lower stage 2 and downstream funding, and the earlier start of Kathleen Valley.

Macquarie isn't the only one pointing out the supply issues with the market.

Forbes recently ran an article warning that the shift to electric cars will stall if lithium supply can't keep up with the forecast demand. The publication noted at report from GlobalData, a leading data and analytics company, said:

Western weaknesses in lithium-ion supply chains will slow electric vehicle adoption and demonstrate China's dominance of the EV (electric vehicle) market.  With lithium prices set to rise throughout the next decade, the EV sector in the West will have to face rising battery costs. If they pass costs on to the consumer, EV adoption will likely accelerate at a slower rate than previously expected.

By 2026, EV output is expected to rise to 12.76 million cars a year. More than half of this total is expected to come from China.

How strong are lithium prices?

ASX 200 lithium shares, indeed all lithium stocks, make money from the price they can get for the lithium they are producing.

Pilbara has been tapping the Battery Material Exchange (BMX) to auction some of its lithium.

The second time the company used BMX, the highest bid it received was US$2,240 per dry metric tonne (dmt). It said that given the strong margins yielded through the BMX trading platform to date, Pilbara expected to channel more concentrate sales through the platform, including concentrate generated from the recommencement of the Ngungaju processing plant.

At the third auction, a cargo of 10,000 dmt at a target grade of 5.5% lithia was presented for sale on the digital platform, with a deferred delivery date in February 2022. There was "strong" bidding by a range of buyers. Pilbara Minerals said it intends to accept the highest bid of US$2,350 per dmt.

ASX 200 lithium share snapshot

In early trading on Monday, the Mineral Resources share price is up 2.4%, the Pilbara Minerals share price is up 2.5%, the Orocobre Limited (ASX: ORE) share price is up 0.5% and the Liontown Resources share price is up 1.9%.

Pilbara Minerals is ramping up its production to take advantage of these prices. In the three months to September 2021, it achieved record production of 85,879 dmt – up 11% quarter on quarter.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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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