3 ASX lithium shares set to roar back: experts

Lithium stock prices have plummeted the last few weeks. Is this a juicy buying opportunity?

| More on:
Three miners stand together at a mine site studying documents with equipment in the background

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As hot as they are, ASX lithium shares have not been immune to the selldown the last few weeks.

However, the long-term global demand for the resource cannot be denied, according to resources sector columnist Barry Fitzgerald.

"The thematic is alive and well. And it's here to stay for decades to come, as governments and companies alike combine forces to rein in global carbon emissions," he posted on Livewire.

"It means decarbonisation is pushing through the current equity market concerns."

That doesn't mean there won't be some volatility in the short term. But eventually, China will abandon zero-COVID, inflation and rates will settle down, and the war in Ukraine will come to an end.

"None of those recovery factors for the global economy are around the corner," said Fitzgerald.

"But they will pass, while all the time, the decarbonisation thematic will continue to gather pace, creating huge and decades-long supply challenges for the broad sweep of commodities plugged into the decarbonisation effort."

Taking advantage of low share prices

Fitzgerald noted that already investors are returning to "take advantage" of low share prices.

He specifically named three lithium producer ASX shares that have massive upside, citing figures from Macquarie Group Ltd (ASX: MQG).

"The firm has a price target on Pilbara Minerals Ltd (ASX: PLS) of $4 compared with its Thursday close of $2.81. Allkem Ltd (ASX: AKE), trading at $13.49, was given a price target of $17.70 and Liontown Resources Limited (ASX: LTR), trading at $1.28, was given a target of $2.50."

Pilbara shares have lost almost 20% since 4 April. The Liontown share price has plunged 37.5% over the same period. 

Allkem shares plummeted 20% until a fortnight ago but have rallied 30.75% since. 

The sell-off was triggered by market worries about China's latest COVID lockdowns and their impact on lithium demand.

"While there has been a little bit of weakness, the resultant equities sell-off has clearly been overdone."

State of the lithium industry

The big reform currently under way in the lithium industry is to switch customers from fixed-price contracts to a more variable agreement.

Macquarie analysts calculated that Pilbara and Allkem were valued as if their "realised lithium carbonate equivalent price" was US$15,000/t.

But the spot price for lithium is currently at a massive US$70,000/t, according to Fitzgerald.

"There is an almighty scramble by the industry to capture a greater share of the bumper spot pricing by shifting their customers to more variable/index-based pricing contracts," he said.

"Early success in doing just that was why the big US lithium producer Albemarle Corporation (NYSE: ALB) was able to again upgrade profit expectations during the week."

In addition to contractual changes, Pilbara showed this month with its online auction of spodumene concentrates that investor worries about a Chinese slowdown were "overdone".

"The cargo of 5,000/t (grading 5.5% lithium oxide) popped off for a record $US5,955/t," said Fitzgerald.

"On a more standard 6% basis, it equates to $6,586/t, or 5% more than the last auction a month ago."

All eyes will be on the Resources Rising Stars conference on the Gold Coast to be held next week.

"Pilbara boss Ken Brinsden will be giving investors an up-to-date assessment of the lithium market," said Fitzgerald.

"Liontown boss Tony Ottaviano will also be updating investors on the group's Kathleen Valley development."

Motley Fool contributor Tony Yoo has positions in 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 Scott Phillips.

More on Resources Shares

a sad looking engineer or miner wearing a high visibility jacket and a hard hat stands alone with his head bowed and hand to his forehead as he speaks on a mobile telephone out front of what appears to be an on site work shed.
Resources Shares

Down 14% in 2024, why is the BHP share price sliding again today?

ASX 200 investors are bidding down the BHP share price on Wednesday.

Read more »

A mining employee in a white hard hat cheers with fists pumped as the Hot Chili share price rises higher today
Resources Shares

These ASX 200 mining stocks could rise 40% to 50%

Analysts think these miners are dirt cheap at current levels.

Read more »

Image from either construction, mining or the oil industry of a friendly worker.
Resources Shares

Fortescue share price leaps 5% as electric machinery makes a milestone

Fortescue is charging ahead with its electric mining ambitions.

Read more »

rising mining asx share price represented by happy woman miner in hard hat
Resources Shares

Why the BHP share price crushed the benchmark this week

BHP shareholders enjoyed a rewarding week.

Read more »

A man wearing a hard hat and high visibility vest looks out over a vast plain where heavy mining equipment can be seen in the background.
Dividend Investing

Here is the profit forecast to 2026 for BHP shares

Let’s unearth how much profit this miner could make.

Read more »

Female miner standing next to a haul truck in a large mining operation.
Resources Shares

Is the worst of the selling now over for ASX iron ore shares?

ASX iron ore giants like BHP, Rio Tinto and Fortescue rebounded this week after falling hard in 2024.

Read more »

Three satisfied miners with their arms crossed looking at the camera proudly
Resources Shares

Why are ASX 200 mining shares smashing the benchmark on Wednesday?

Rio Tinto, BHP and Fortescue shares are all charging higher today.

Read more »

Two miners standing together.
Resources Shares

Why is the South32 share price getting battered today?

ASX 200 investors are bidding down South32 shares today.

Read more »