Why are ASX lithium shares tanking on Wednesday?

Goldman Sachs believes the battery metals bull market is over for now.

Key points
  • ASX lithium shares are deep in the red today
  • Goldman Sachs believes lithium prices are set to fall over the medium term
  • Longer term, EVs could represent 30% of all vehicle sales by 2030

ASX lithium shares had been handily outperforming the benchmark since Anthony Albanese and the Labor party swept into Canberra last week.

With Labor spruiking tougher commitments to emissions reductions, investors were rewarding producers of the critical battery metal.

Until today.

In late morning trade some of the biggest ASX lithium shares are deep in the red.

How deep?

The Allkem Ltd (ASX: AKE) share price is down 12%; shares in IGO Ltd (ASX: IGO) have lost 13%; and the Pilbara Minerals Ltd (ASX: PLS) mineral share price has tanked 16%.

Ouch.

So, what's going on?

A child holds a piece of paper with a sad globe painted on it in front of his face.

Image source: Getty Images

Argentina and Goldman Sachs

It looks like Argentina, a nation with some of the largest known lithium reserves on Earth, gets some of the blame.

According to The Australian, Argentina has set a reference price for lithium carbonate exports of US$53 per kilogram. This comes after irregularities were detected in shipments over the past two years.

Bloomberg noted, "The reference price strengthens customs' capacity to oversee exports and avoid under-invoicing." This reportedly helps "avoid manoeuvring that impacts tax revenues and dollar sales".

Separately, Goldman Sachs came out with a bearish medium-term outlook for lithium prices that looks to be weighing on ASX lithium shares today.

According to Goldman (courtesy of The Australian):

With climate change top of mind, investors are fully aware that battery metals will play a crucial role in the 21st century global economy, just as bulk and base metals did before them. Yet despite this exponential demand profile, we see the battery metals bull market as over for now.

Crucially, with no prior large-scale demand or supply cycle behind them, these 'new economy' commodities have avoided copper and aluminium's 'Revenge of the Old Economy' investment trap.

Indeed, the reverse has occurred, with a surge in investor capital into supply investment tied to the long-term EV demand story, essentially trading a spot driven commodity as a forward-looking equity.

That fundamental mispricing has in turn generated an outsized supply response well ahead of the demand trend in focus. In this context, we see prices on a downward trajectory over the course of the next two years, with a sharp correction in lithium, and to a lesser extent cobalt.

Not everyone is bearish on ASX lithium shares

Despite today's sharp pullback, longer-term investors in leading ASX lithium shares will have little to complain about.

Over the past 12 months, the IGO share price is up 46%; the Allkem share price is up 85%; and the Pilbara share price is up 100%.

And investors with long term horizons may wish to look ahead to 2030.

According to Barrenjoey, "Electric Vehicles are set to transform the lithium and nickel commodity markets. We forecast global EV sales growing to 30 million in 2030 or around 30 per cent of new car sales."

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 Scott Phillips.

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