Vulcan share price pops 5% on future lithium expectations

Could lower lithium prices be a good thing for Vulcan Energy?

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A green fully charged battery symbol surrounded by green charge lights representing the surging Vulcan share price today

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Key points

  • The Vulcan Energy share price finished firmly in the green on Thursday
  • Vulcan shares are rallying despite a recent note from Goldman Sachs suggesting declining lithium prices to come
  • A tighter market could be renewing interest in Vulcan's proposed low-cost production method

The Vulcan Energy Resources Ltd (ASX: VUL) share price is benefitting from a surge in positive investor sentiment today.

Upon inspection, the lithium explorer went toe-to-toe with some of the best performers on the ASX on Thursday. The Vulcan share price finished the session up 5.53% at $8.02.

Interestingly, there were no announcements percolating through from Vulcan to the market today. So, what could be grabbing the attention of ASX investors?

Mapping out the future of lithium

Investors know all too well that the future is more important than the past. It is not where the share price currently is that defines our returns, it’s where it will be years from now.

Because of this, estimates and forward projections become the driving force in the short term. As for the Vulcan Energy share price, today came with a set of important forecasts regarding the commodity of focus — lithium.

Recently, analysts at Goldman Sachs pencilled in their projections for lithium prices. They believe lithium carbonate prices will average US$46,640 per tonne this year. However, the analysts project a decline in prices for future years — falling from US$20,500 per tonne in 2023 to US$14,468 per tonne in 2025.

While Vulcan is not yet producing lithium, the value of its future cash flow is reliant on the commodity’s value. Considering this, it might not make sense why the Vulcan share price is in the green today.

One reason might be a renewed focus on potential profitability. Noted by Ben Cleary of Tribeca Global Natural Resources Fund, if lithium prices do retreat, investors still wanting exposure to the sector might congregate around cash-positive companies.

Essentially, the premise of Vulcan Energy’s goal is to produce lithium at a substantially lower cost than is traditional by using its Direct Lithium Extraction method. Although, this is still undergoing assessment.

Vulcan share price snapshot

Vulcan was one of the best performing ASX shares in 2020 and 2021. However, that performance hasn’t been replicated so far this year.

Since hitting an all-time high price of $16.65 in September last year, Vulcan shares have been steadily declining. Looking at the year-to-date performance, the Vulcan share price is down 26%.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs. 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 Scott Phillips.

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