ASX lithium shares have seen plenty of volatility in 2022. But with the lithium price charging higher, could the final quarter of 2022 be a useful time to go hunting for opportunities?
Keep in mind that a higher resource price for a commodity can provide a big boost for the net profit after tax (NPAT) and cash flow. If production volume doesn't change and the costs of production don't change, but the company gets more revenue for that production, then it's largely bonus money for the company (after paying more to the government).
There are a number of different ASX lithium shares to consider, including Pilbara Minerals Ltd (ASX: PLS), Liontown Resources Limited (ASX: LTR), Allkem Ltd (ASX: AKE), Core Lithium Ltd (ASX: CXO) and Mineral Resources Limited (ASX: MIN).
So, what's the outlook for the lithium price? Let's go through what one of Australia's leading economists currently thinks.
Lithium demand expected to keep rising
The resources and energy quarterly report from the chief economist of the Department of Industry, Science and Resources was very promising for ASX lithium shares.
It noted that global sales of all types of electric vehicles increased 36% in the year to June 2022, compared to the same period in 2021. Chinese sales were up 110%, European sales went up 6%, and North American sales increased 27%.
The report also pointed out that in May, the Chinese Government "cut purchase taxes on some low-emission passenger vehicles by 50%, while some municipal governments have also provided subsidies and incentives to encourage EV purchases. Global passenger EV sales are expected to continue to grow strongly".
Major global car makers are accelerating plans to transition to electric vehicles by developing new product lines and converting existing manufacturing capacity.
The report suggested "strong underlying demand and EV manufacturers' declarations of further increases in production, imply that EV sales could reach almost 40% of vehicle sales annually by 2030". This would be an increase from 9% of sales in 2021.
Worldwide demand for lithium carbonate equivalent will be 724,000 in 2022, then rise by 40% to reach 1,058,000 tonnes by 2024. Asia is reportedly the major source of lithium demand, despite the increase of new battery manufacturing capacity in Europe and the US.
What about prices?
In terms of the price, the report pointed out that "supply disruptions in August (due to extended power cuts in Sichuan province, amidst an intense heatwave) added pressure to lithium prices in China". Sichuan reportedly produces more than 20% of China's lithium.
Many Australian producers have used long-term contracts, so the price received takes time to adjust to the current price. ASX lithium shares are seeing good prices, so it is flowing into contract prices.
The spodumene price is forecast in the report to remain high and average US$3,280 a tonne by 2023 before moderating to US$2,490 in 2024.
The report suggested that lithium is set to become a $10 billion-plus export industry within a year.
Broker ratings on ASX lithium shares
Brokers recognise the strong pricing of lithium, but some valuations may have run too hard.
For example, UBS rates the Pilbara Minerals share price as a sell, with a price target of $2.65. But, UBS does rate Allkem as a buy, with a price target of $18.70.
