ASX lithium stocks have been on a wild ride this week.
ASX lithium shares have been some of the best performers on the index over the past year. That outperformance has been driven by rocketing lithium prices, with the battery metal in high demand for its crucial role in powering electric vehicles (EVs).
But ASX lithium shares tumbled on Wednesday as investors were spooked by the bearish forecast for lithium prices from Goldman Sachs. The broker believes the sector is overinvested with excess supply hitting the market over the next few years and predicts "a sharp correction in lithium".
News of legendary investor Warren Buffett's intention to buy six lithium mines in Africa via EV company BYD, also may have led investors to fear a potential oversupply of the lightweight conductive metal.
On Wednesday, the Allkem Ltd (ASX: AKE) share price lost 15.4%; IGO Ltd (ASX: IGO) closed down 12.7%; Pilbara Minerals Ltd (ASX: PLS) dropped 22.4%; and shares in Mineral Resources Ltd (ASX: MIN) fell 8.1%.
All four ASX lithium shares are well into the green today.
But if Credit Suisse has it right, they're in for some more headwinds.
What does Credit Suisse forecast for supply and demand?
Credit Suisse analyst Matthew Hope said runaway lithium prices have seen a surge of new lithium brought to market while raising the costs of the batteries the metal is used in, thereby "incentivising supply and destroying demand".
As reported by The Australian, Hope believes the supply and demand dynamics will be in balance in 2023 through 2024, adding that "surpluses threaten from 2025".
According to Hope:
We previously considered the deficit was intractable, but the world has changed with inflation, war and lockdowns souring the demand outlook, whilst the pace of supply response to spiking prices has been more rapid than anticipated.
What this could mean for ASX lithium shares
Alongside its forecast that lithium markets are facing a looming period of oversupply, Credit Suisse has downgraded Allkem to a neutral rating. It reduced its target for the Allkem share price by 10% to $14.70. That's still 24% above the current price of $11.86, at the time of writing.
Credit Suisse also reduced its rating for Pilbara Minerals to neutral. Its target price for the ASX lithium share was lowered by 19% to $3, representing a 25% upside to Pilbara's current share price of $2.40.
Both Mineral Resources and IGO held onto their outperform rating from Credit Suisse.
The broker's price target for Mineral Resources is $73, 22% above the current price of $59.92. While involved in lithium production, Credit Suisse flagged the company's diversified operations outside of the lithium space. This includes its mining services segment and gas projects.
Credit Suisse kept IGO as an outperform. It cited its low lithium production costs and intentions to ramp up the Kwinana project as offering tailwinds ahead. Kwinana, located in Western Australia, is one of the first fully automated battery-grade lithium hydroxide facilities in the world. Credit Suisse has a price target of $15.60 for the ASX lithium share, 30% above IGO's current share price of $11.97.
