Here’s why the Pilbara (ASX:PLS) share price is on watch

Pilbara shares are in focus due to the Serbian decision regarding Rio Tinto’s Jadar project.

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ASX lithium shares record A line-up of green lithium batteries, indicating positive share price movement for clean ASX lithium miners

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Key points

  • The Pilbara share price is in focus after some bad news for one of its competitors in the lithium space
  • Rio Tinto has had its permits revoked for the lithium project in Serbia called Jadar
  • Supply and demand could have an influence on future lithium prices

The Pilbara Minerals Ltd (ASX: PLS) share price will be under the spotlight after the latest decision in Serbia regarding the Rio Tinto Limited (ASX: RIO) Jadar project.

Pilbara is one of the largest lithium miners with a market capitalisation of $11.3 billion according to the ASX.

Rio Tinto is by far the larger miner of the two. But it has intentions to grow its exposure to the battery material lithium.

Supply and demand is a very important factor when it comes to commodity prices. In theory, the more supply there is the more pressure there is on the price. However, the opposite can also be true. If there’s less supply then prices could improve.

Over the last 12 months there has been strong demand for lithium, pushing up the price.

Pilbara said in December that, lithium market conditions were strong, with high demand and constrained supply leading to record product pricing, which was still trending higher.

But in future years, more lithium projects are scheduled to come online.

What has happened with Rio Tinto?

According to reporting by the Sydney Morning Herald, the Serbian Prime Minister Ana Brnabic has revoked Rio Tinto’s permits.

There has been sustained campaigning by locals about the Rio Tinto Jadar project because of concerns regarding the potential environmental impacts of the mine.

The Serbian Prime Minister said according to the Sydney Morning Herald:

We are listening to our people and it is our job to protect their interests even when we think differently.

All decisions [linked to the lithium project] have been annulled. As far as project Jadar as concerned, this is an end.

What is Rio Tinto going to do about this? A spokesman said:

Throughout our work on the Jadar project we have always operated in compliance with the laws of the Republic of Serbia.

Rio Tinto is reviewing the legal basis of this decision and the implications for our activities and our people in Serbia.

How important was Jadar for the lithium market?

Jadar was expected to be a big project. Rio Tinto recently committed $2.4 billion to the lithium-borates project. It said it was one of the world’s largest greenfield lithium projects. It was expected to be one of the largest industrial investments in Serbia, contributing 1% directly and 4% indirectly to GDP.

Rio Tinto said it could supply enough lithium to power over one million electric vehicles per year. Full production was expected to be around 58,000 tonnes of lithium carbonate per year.

As Rio Tinto points out, lithium demand is expected to grow by between 25% to 35% per annum over the next decade.

If the Jadar project does not go ahead, then all of that lithium supply will not happen. There would be less total global supply, which may assist Pilbara.

Analyst rating on the Pilbara share price

Despite going up by around 200% over the past year, Pilbara is still rated as a buy by Macquarie with a price target of $3.70. The thought is that demand for electric vehicles can continue to keep the lithium price high.

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

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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 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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