Could the Pilbara share price take off in June?

Let’s see what some brokers are saying.

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Key points

  • ASX lithium shares like the Pilbara are rebounding strongly today 
  • Macquarie and Shaw believe the sector is oversold following the big sell-off on Wednesday  
  • The market may be overestimating the supply response and there’s little threat from substitutes for lithium when it comes to batteries 

ASX lithium shares could make a rebound as some experts have come out to defend their bullish outlook for the sector.

These views stand in sharp contrast to the boom-to-gloom prediction from Goldman Sachs for lithium.

The broker’s forecast of a sharp retracement in the price of the battery-making ingredient is one of the key reasons ASX lithium shares were flogged on Wednesday.

Pilbara share price and peers getting a recharge

But bargain hunters could be returning already. The Pilbara Minerals Ltd (ASX: PLS) share price surged 6.1% to $2.42, Allkem Ltd (ASX: AKE) share price jumped 3.3% to $11.82 and Core Lithium Ltd (ASX: CXO) share price rocketed 7% to $1.22 in early trade.

Their redemption comes as Macquarie said it sees material valuation upside for lithium miners under its coverage. The broker commented:

Battery grade lithium carbonate prices are the key driver to our valuation outlook for lithium miners. We note that PLS is currently pricing in realised prices around US$13,000/t (China Lithium Carbonate 99.5%, US$/t, Ex VAT).

This is ~80% below current spot lithium carbonate prices in China and is equivalent to a flat spodumene price of ~US$950/t, 85% below the last BMX spot sale.

Pilbara share price is the top pick for Macquarie

Further, news that Chinese electric vehicle (EV) maker BYD bought six African lithium mines isn’t as bearish as it sounds. Lithium bears took the news to mean that the large EV maker will no longer add to demand pressure for the commodity.

That certainly sounds credible given that the mines are said to hold one million tonnes of lithium carbonate equivalent (LCE).

But Macquarie believes logistical challenges are likely to limit the pace of mine development and production.

The broker’s top pick among ASX lithium shares is the Pilbara share price.

Supply-side response slower than you’d might think

Meanwhile, Shaw and Partners have also expressed doubts about how readily new supplies of lithium can be brought to the market.

While the earth’s crust has an abundance of lithium, the broker noted that commercial lithium deposits are scarce.

No substitute for ASX lithium shares

Shaw doesn’t think now is the time to be bearish on ASX lithium shares. Its positive view is also driven by its belief that there is little threat from substitutes for lithium when it comes to batteries.

This is unlike cobalt and nickel with some battery manufacturers developing new technologies to replace these metals.

Shaw said:

Lithium ties into the electrification thematic that is taking over the globe. The reason for the hype is lithium has unique characteristics that are difficult to replicate. It is a light metal but is able to store large amounts of energy and is an excellent conductor of electricity.

Motley Fool contributor Brendon Lau 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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