How the Pilbara Minerals (ASX:PLS) share price surged 268% higher in 2021

This lithium share smashed the market in 2021….

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It certainly was a stunning 12 months for the Pilbara Minerals Ltd (ASX: PLS) share price in 2021.

The lithium producer’s shares were the best performers on the ASX 200 index by some distance.

Over the period, the Pilbara Minerals share price climbed a whopping 268%.

Why did the Pilbara Minerals share price rocket higher?

Investors were scrambling to buy the company’s shares last year amid an ever-increasingly bullish outlook for lithium. This led to many lithium shares generating outsized returns for investors over the 12 months.

Demand for lithium has been increasing due to the rise of electric vehicles and the decarbonisation theme. In fact, demand is so strong that it has been tipped to materially outstrip supply over the coming years.

As we saw with iron ore last year, when this happens with a commodity, its scarcity drives prices higher and higher. And that is exactly what is happening with the battery making ingredient.

You only need to look at Pilbara Minerals’ Battery Material Exchange (BMX) auctions. The company’s BMX was established in July to sell spodumene concentrate that was not already contracted.

The first auction saw the company command a price of US$1,250 per dry metric tonne (FOB Port Hedland). This shocked the market as it was notably higher than spot prices at the time. Since then, the company received prices of US$2,240 per dry metric tonne in September and then US$2,350 per dry metric tonne in October.

Given that during the first quarter of FY 2022 the company’s unit operating cost stood at US$445 per dry metric tonne, this bodes very well for the future and goes someway to explaining the sharp rise in the Pilbara Minerals share price.

Where next for its shares?

Incredibly, on the first day of trade in 2022 the Pilbara Minerals share price continued its meteoric rise and jumped 10% to $3.52.

One broker that still sees scope for its shares to rise a little further is Macquarie Group Ltd. Its analysts currently have an outperform rating and $3.70 price target on its shares.

Though, as we saw a number of times in 2021, Macquarie is not afraid of lifting its price target if trading conditions continue to bloom.

This will make it well worth keeping a close eye on the Pilbara Minerals share price again in 2022.

Should you invest $1,000 in Pilbara Minerals right now?

Before you consider Pilbara Minerals, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Pilbara Minerals wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor James Mickleboro 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 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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