Is this the real reason ASX lithium shares cratered on Wednesday?

Lithium shares were sold off on Wednesday. Is this why?

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Key points

  • Lithium shares had a day to forget on Wednesday
  • The industry was a sea of red with many major players recording double-digit declines
  • Was Goldman Sachs to blame? Probably not...

Yesterday was one of the worst days on record for Australian lithium shares.

The likes of Allkem Ltd (ASX: AKE) and Pilbara Minerals Ltd (ASX: PLS) made double-digit declines, with the latter falling more than 20%.

Why were lithium shares sold off?

While there were a number of catalysts for these declines, news that Goldman Sachs was bearish on lithium prices was suggested to be the main reason for the weakness.

However, this didn't make a lot of sense. As I've mentioned before, Goldman's belief that lithium prices have peaked and will fall materially in the coming years is not new.

At the start of last month, I outlined Goldman's forecasts for lithium prices through to 2025. These forecasts can be found here.

In addition, the most recent note from Goldman Sachs in relation to battery materials was actually released on Monday. Which means the selloff should really have occurred on Monday or Tuesday, not on Wednesday.

So what was the real cause?

The real reason for the weakness in ASX lithium shares such as Liontown Resources Limited (ASX: LTR) and Sayona Mining Ltd (ASX: SYA) appears to be news out of China.

According to Chinese media organisations, Warren Buffett-backed electric vehicle company BYD is planning to buy six lithium mines in Africa.

In total, BYD is understood to be expecting these mines to produce approximately 1 million tonnes of lithium carbonate each year. That would be enough to build at least 27.78 million electric vehicles, which covers the automaker's expected demand for the next decade.

So, as well as increasing supply, it would also take a major buyer of lithium out of the chain. This could have a big impact on the demand side and therefore lithium prices in the coming years. It may also make Goldman's bearish view more accurate than some investors would like to believe.

Motley Fool contributor James Mickleboro has positions in Allkem 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 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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