Is a bubble forming for ASX green metals shares?

One expert asks whether energy transition metals could be in a bubble.

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Key points

  •  ASX green metal shares could be in a bubble according to one expert 
  • Green metal shares on the ASX include Pilbara Minerals and Firefinch 
  • ASX green metal shares have been surging in the past month 

ASX green metals are in demand lately, but could a bubble be forming in the green metals sector?

So-called ‘green metals’ are those used in cleaner-energy applications. Such shares on the ASX include Pilbara Minerals Ltd (ASX: PLS), Firefinch Ltd (ASX: FFX), and Mineral Resources Ltd (ASX: MIN). Others include Centaurus Metals Limited (ASX: CTM) and Liontown Resources Limited (ASX: LTR).

So what is the outlook for ASX green metals shares?

Green metal transition

Green metals are metals that will be prominent in the transition from fossil fuels to clean energy. They include lithium, graphite, rare earths, nickel, and copper.

Asked if a bubble could be developing in the sector, Argonaut Natural Resources Fund portfolio manager David Franklyn told the Australian Financial Review:

The green materials sector is certainly volatile, which in part reflects the fact that demand is rising quicker than supply. This has been evident in the huge increase in spodumene prices and the spike in nickel prices.

Against that backdrop, it’s not unexpected that the sector may attract speculative money whilst also making the valuation of stocks more problematic.

A stock market bubble can form when there is a significant surge in share prices beyond the fundamental value of the companies.

Franklyn noted there has been a strong rebound of multiple lithium stocks in March, including Pilbara and Firefinch.

Share price recap

The Pilbara Minerals share price has soared 26% in a month while Firefinch has rocketed 73%. Meanwhile, Mineral Resources has gained 24%, Liontown Resources has leapt 28%, and Centaurus Metals has surged 17%.

In contrast, the S&P/ASX 200 Index (ASX: XJO) has jumped just under 6% in a month.

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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