New year’s resolution: Why are ASX lithium shares having such a stellar day?

It’s been a great start to the year for ASX lithium players. Here’s why

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Shares in ASX lithium players are off to a stellar start to the trading year in 2022. The sector is outpacing the broad indices by a considerable margin today.

For example, units in the ETFs Battery Tech & Lithium ETF (ASX: ACDC) – a proxy for matching returns for battery and lithium players – are trading more than 3% higher on the day at $96.50.

Meanwhile, the benchmark S&P/ASX 200 Index (ASX: XJO) is up just 1.5% today at 7,561.6 points at the time of writing.

Why are ASX lithium shares so strong today?

Checking ASX trade data shows considerable trade depth in lithium frontrunners such as Pilbara Minerals Ltd (ASX: PLS) and Allkem Limited (ASX: AKE), up more than 7% and 6% respectively.

Several other ASX lithium shares such as Liontown Resources Limited (ASX: LTR) and Core Lithium Ltd (ASX: CXO) are also posting strong gains during the session, backed by positive sentiment in the wider sector.

While there’s been no price-sensitive information released by any of these kinds of companies today, lithium pricing is the major factor underpinning pricing strengths in the sector.

Demand and supply mechanics for the battery metal ensure lithium prices remain in a cyclical upswing in 2022.

Lithium is still powering up

Lithium went parabolic from January last year and the market has maintained the upward pressure consistently over the last 12 months.

On the demand side, uptake of lithium-style batteries has been sequential alongside the transition into electric mobility.

For instance, global electric vehicle sales jumped 160% during 2021, according to analysis from Trading Economics. Meanwhile, EV deliveries in China are expected to double in 2022 to reach more than 5 million sales.

This cause-effect has sent the price of lithium soaring in the past 12 months, according to analysis from Goldman Sachs, RoskillInternational Energy AgencyFactSetStatista, CRU Group, and Bloomberg Intelligence.

In that time, the price of the battery metal has soared more than 104%. It now trades at 277,500 Chinese Yuan per tonne, yet another record high.

Why does it matter?

What’s relevant for ASX lithium shares today is that prices in the spot and futures markets for lithium took off once again in December, climbing 38%.

Even in the past week prices have spiked another 3.4% at the time of writing. Producers and explorers with direct exposure will see their stock fluctuate alongside volatility in the lithium markets, due to their positioning as price takers on the battery metal.

Companies in adjacent markets with exposure to lithium-ion batteries are benefiting from rising prices in the raw material as well.

Hence, the momentum has spilled over into the new year, which bodes well for ASX lithium shares.

Should you invest $1,000 in ASX lithium shares right now?

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The author has no positions 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 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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