Could ASX lithium shares be set for a boost?

A top broker’s upgrade on its lithium price forecast bodes well for ASX lithium shares, which have lost major value over the past month.

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Key points

  • Top broker Macquarie has upgraded its forecast for lithium prices 
  • This bodes well for ASX lithium shares, which have lost major value over the past month 
  • Bell Potter has a buy rating on four ASX lithium shares 

Top broker Macquarie has upgraded its forecast for lithium prices, which bodes well for ASX lithium shares.

The upgrade comes a month after fellow broker Goldman Sachs tipped a “sharp correction” in lithium prices due to an impending oversupply, which sent ASX lithium share prices tumbling.

According to reporting in The Australian, Macquarie reckons new supply from up-and-coming spodumene producers won’t reach a material volume until 2023.

So, that will support lithium prices as strong demand for the commodity continues, particularly from the burgeoning electric vehicle (EV) market.

In fact, the broker says this demand could potentially more than offset any increase in lithium supply.

Forecast for lithium price up 8% to 13%

Macquarie “now expects spodumene prices to peak at US$4,900 a tonne in the September quarter”, according to the article.

As a result, it has upgraded its short-term and medium-term forecasts by 8% to 13% per tonne.

The article quoted Macquarie as saying the upgrade reflects the “persisting market deficit despite an accelerating supply response”.

The broker noted that spot lithium prices in China were increasing after a recent correction.

Macquarie describes the lithium market as remaining “tight”. Rebounding EV sales are supporting the price after supply chain issues caused by COVID-19 lockdowns in China resulted in a lull.

What does this mean for ASX lithium shares?

Like any ASX resources company, lithium miners are price takers. The higher the lithium price is, the more profit they make. And vice versa.

ASX lithium shares have become a very popular part of the equities market. Governments, businesses and consumers around the world are finally taking climate change seriously. This is giving momentum to pretty much any company involved in the green energy supply chain.

Time will tell whether all these young growing companies in lithium mining will end up creating an oversupply, which would likely reduce lithium prices.

Which ASX lithium shares should you buy?

As my Fool colleague James reported recently, broker Bell Potter has a buy rating on four ASX lithium shares.

Bell Potter’s lithium share picks are as follows:

  • Allkem Ltd (ASX: AKE) with a share price target of $17.53 (buy)
  • Green Technology Metals Ltd (ASX: GT1) with a share price target of $1.37 (speculative buy)
  • Lake Resources N.L. (ASX: LKE) with a share price target of $2.83 (speculative buy)
  • Liontown Resources Limited (ASX: LTR) with a share price target of $3.06 (speculative buy).

These ASX lithium shares have all fallen substantially over the past month since Goldman’s note.

  • Allkem shares are down 26% over the past month to $9.64 at market close on Thursday
  • Green Technology shares are down 33% to 57 cents
  • Lake Resources shares are down 54% to 70 cents
  • Liontown Resources shares are down 33% to 88 cents

Motley Fool contributor Bronwyn Allen has positions in Allkem Limited and Macquarie Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs. The Motley Fool Australia has recommended Macquarie Group Limited. 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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