Why 'long-term lithium prices are far too low': Wilsons

We reveal the ASX lithium shares that Wilsons analysts like most.

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Key points

  • Wilsons equity strategist Rob Crookston says the consensus among analysts is for the long-term lithium price to drop back to about US$36,000 per tonne
  • Crookston reckons that is "far too low" 
  • The lithium price closed the session last night at US$76,807 per tonne

The lithium price is up 188% over the past 12 months, closing last night's session at US$76,807 per tonne.

Wilsons equity strategist Rob Crookston says the consensus among analysts right now is for long-term lithium prices to drop back to about US$36,000 per tonne. He says that's "far too low".

Crookston writes on Livewire: "While we do not expect lithium prices to remain elevated at these levels over the next 12 months, we believe they will be significantly higher than consensus…"

He says the energy transition "involves more energy storage and a higher uptake of electric vehicles, both of which will create a higher demand for batteries, specifically lithium-ion batteries".

Why the long-term lithium price prediction is too low

Crookston elaborates:

With a significant increase in demand for EV's comes a significant increase in demand for lithium-ion batteries. We expect demand for lithium to grow by 6-8x between now and 2030.

We don't believe lithium supply can keep up with this level of demand growth. Lead times for lithium mines (from discovery to production) can take 5+ years, so there is no quick fix. If demand can grow at the market's expected pace, this could lead to large supply deficits from 2025 onwards.

Crookston says the energy transition is a major thematic trend and ASX lithium shares are the best way for investors to capitalise on it.

He says:

We believe one of the best ways to play this thematic is through the minerals and metals that will be in high demand as we progress through this decade and beyond.

We believe the market has not fully quantified the volume of required commodities accurately in relation to the transition, and many battery mineral miners are still undervalued relative to potential growth of their underlying commodities.

When looking at the mineral mix in batteries, all roads still lead to lithium as the core base of battery technology over the next decade. We do not see an alternative to the lithium-ion battery (and hence lithium) in decarbonising the global auto fleet.

Which ASX lithium shares should you buy?

Allkem Ltd (ASX: AKE) is the Wilsons team's preferred ASX lithium share. They cite its position as among the world's top five producers, with operations in brine, spodumene, and hydroxide.

Crookston adds:

We prefer lithium miners, like AKE, who are currently producing lithium. We believe there is more exuberance in the non-producers, and valuations may have overshot fair value.

[Allkem has] business operations are spread across Argentina, Australia, Canada and Japan. The company has deep brine and hard rock lithium resources and a depth of experience in these fields. AKE brine production is low cost relative to the Western Australia spodumene (hard rock) mines.

We believe consolidation is likely in the pipeline for AKE, one of the biggest players in South America's 'Lithium Triangle'. The company could acquire smaller explorers to increase its capacity.

The current Allkem price represents value, according to Crookston. Wilsons increased its investment fund weighing in Allkem to 3% in early August.

Allkem shares are trading at $14.76 at the time of writing, up 2.8% for the day so far and up 32% in 2022.

Wilsons also likes three other ASX lithium shares. They are Pilbara Minerals Ltd (ASX: PLS), IGO Ltd (ASX: IGO), and Mineral Resources Limited (ASX: MIN).

Motley Fool contributor Bronwyn Allen 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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