Why ASX lithium shares could send heads spinning this earnings season

As lithium prices retain their record price levels, analysts are getting excited for "unprecedented" earnings

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Key points

  • Lithium prices rise an additional 25% so far in 2022
  • Credit Suisse analyst increases price forecasts out to 2025 as conditions remain positive
  • This optimism arrives ahead of earnings season where ASX lithium shares will release their quarterly results

Already in 2022 lithium carbonate prices have climbed 25% higher. This has set the stage for ASX lithium shares as we near the February earnings season.

The battery mineral has undergone a metamorphosis in recent years — evolving from undesired to highly sought after. For context, lithium carbonate prices increased by roughly sixfold last year, marking a period of outsized returns for many investors in the space.

Analysts at Credit Suisse are now anticipating more upside for the electrifying battery material as demand continues to elevate.

Another potential catalyst for ASX lithium shares

The lithium price has shown no signs of losing its charge in the near term as January 2022 experiences further pricing strength.

A perfect cocktail of rampant growth in demand and a constrained supply due to the impacts of COVID-19 continues to support higher prices. As such, the team at Credit Suisse is expecting ASX lithium shares will enjoy "unprecedented" margins.

Furthermore, the positive conditions have led analyst Saul Kavonic to increase his spot price forecasts. Yesterday, Kavonic lifted forecasts out to 2025 by 8% to 33%. This reflects the impression that demand will continue to outstrip supply, giving prices more room for growth.

Commenting on the near term cash flows for ASX lithium shares, Kavonic said:

The near-term price backdrop can see more than 40% of net asset value accrue within the next four years, so material free cash flow is no longer a longer-dated prospect.

The broker's increase in spot price forecasts follows Macquarie Group Ltd (ASX: MQG) similarly bullish outlook on the sector. In December, the investment bank named several lithium producers it expects will perform strongly this year.

Get ready for an electric earnings season

This confluence of positive factors for ASX lithium shares has landed on the doorstep of earnings season. Over the coming weeks, companies will be releasing their quarterly reports.

At this stage, Allkem Ltd (ASX: AKE) has kicked it off for the lithium sector, publishing its results today. The next big lithium name slated to release its quarterly results is Pilbara Minerals Ltd (ASX: PLS) on Thursday 27 January.

Lastly, Mineral Resources Ltd (ASX: MIN) and Piedmont Lithium Inc (ASX: PLL) are earmarked for Friday 28 January.

Motley Fool contributor Mitchell Lawler owns Macquarie Group Limited. 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 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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