Here’s why the lithium price is in the spotlight today

Lithium prices are in focus as UBS increased its expectations in 2022.

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Key points

  • Lithium prices are expected to remain strong, according to UBS
  • UBS increased spodumene expectations by 17% for 2022 to US$4,485 per tonne
  • Electric vehicle demand is expected to rise to 2030

Lithium prices are a hot topic right now and the broker UBS has given its latest views on where it thinks the lithium price is going in 2022.

The share prices of many of ASX’s lithium miners have gone up over the past year.

In the last 12 months:

The Allkem Ltd (ASX: AKE) share price has risen 141%.

The Pilbara Minerals Ltd (ASX: PLS) share price has gone up 176%.

Liontown Resources Limited (ASX: LTR) has seen its share price rise by 275%.

The Mineral Resources Limited (ASX: MIN) share price has gone up by 50%.

UBS’ latest thoughts on lithium 

According to reporting by the Australian Financial Review, UBS has increased its forecast for lithium prices in 2022.

The broker said that it’s reviewing its long-term assumptions with lithium spot prices outperforming expectations. UBS noted that there are no signs of easing yet.

UBS increased spodumene expectations by 17% for 2022 to US$4,485 per tonne and its long-term price remains at US$800 per tonne.

UBS pointed out that at a price of US$4,485 per tonne, this is lower than the US$5,000 per tonne guidance that has been given by Allkem.

The broker suggested that while lithium producers may not receive the spot price for what they produce (due to fixed-price contracts), the lithium sector could move towards spot pricing.

A closer look at UBS-rated miner, Allkem 

UBS rates Allkem as a buy.

The lithium miner said that the materially higher realised pricing for lithium will result in a material lift to revenue and cash flow in the upcoming quarters.

In terms of the supply and demand, Allkem said that demand for lithium chemicals is estimated to increase rapidly, supported by “favourable government EV policies and the transition to electrification by automakers.”

The lithium miner says that the transition to carbon neutrality will help, with carbon emissions targets and penalties, government regulations and subsidies, and a growing range of electric vehicle models.

According to Allkem, the majority of supply growth from lithium chemicals is expected to come from “incumbent producers” with quality resources and technical processing expertise.

The market is estimated to remain in a supply deficit for the remainder of the decade.

Allkem notes that electric vehicle demand is forecast to increase by 63% between 2021 to 2022. Electric vehicle demand is expected to increase at a compound annual growth rate (CAGR) of 23% from 2021 to 2030.

The electric vehicle penetration rate is expected to rise from 6% to 34% between 2021 to 2030.

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 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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