One broker’s outlook for lithium supply and demand and what it could mean for ASX lithium shares

Companies in the lithium space have seen some big price swings this week as investors analyse various supply and demand forecasts.

| More on:
A white EV car and an electric vehicle pump with green highlighted swirls representing ASX lithium shares

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

Key points

  • ASX lithium shares are in focus amid supply and demand forecasts
  • Soaring lithium prices could be reducing battery demand by driving up the cost of electric vehicles 
  • Credit Suisse forecasts potential lithium surpluses by 2025

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.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs. 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.

More on Resources Shares

Bored woman working on her laptop.
Resources Shares

Why is the Hawsons Iron share price slumping 9% today?

Hawsons Iron completed its acquisition of Pure Metals' 24.15% interest in the Hawsons Iron Project in May 2021.

Read more »

Rocket powering up and symbolising a rising share price.
Share Gainers

Guess which tiny ASX mining share just rocketed 45% on new copper and gold finds

The micro-cap ASX miner is hitting some rich mineral veins in the Northern Territory.

Read more »

A man in suit and tie is smug about his suitcase bursting with cash.
Resources Shares

Can BHP shares keep cashing in on coal?

Despite political chin-wagging on emissions reductions, global demand for Australian coal is soaring.

Read more »

A man in shirt and tie uses his mobile phone under water.
Resources Shares

Why is the Lake Resources share price sinking 8% on Wednesday?

What is taking a towelling to the Lake Resources share price today?

Read more »

A group of businesspeople hold green balloons outdoors.
Resources Shares

Can shareholders have bigger dividends AND more spending on Fortescue Future Industries?

Will Fortescue dividends suffer if it keeps spending on FFI?

Read more »

A male broker wearing a dark blue suit and tie puts his finger to his lips to signal a secret tip about the Xero share price
Resources Shares

‘Clearly under the radar’: Expert reveals hidden gem ASX share he’s holding

One fund manager lets slip a stock about to go crazy that no one else knows about.

Read more »

Scared looking people on a rollercoaster ride representing the volatile Mineral Resources share price in 2022
Resources Shares

Why is the Sayona Mining share price so volatile?

Sayona Mining shares have been all over the place this year. We look at what's going on.

Read more »

Happy woman miner with her thumb up signalling Wyloo's commitment to back IGO's takeover of Western Areas nickel
Resources Shares

Why has the Panoramic Resources share price surged 40% in a month?

Rising global demand for nickel and BHP's play for OZ Minerals have helped propel Panoramic shares in recent times.

Read more »