The share prices of many ASX lithium shares have suffered a significant sell-off. The cause may have been news of a lower price for a cargo of lithium sold at auction last week. Certainly, this could have caused investors to worry that lithium prices had peaked.
In the last two days of last week, the Pilbara Minerals Ltd (ASX: PLS) share price dropped by around 10%. Since 9 November 2022, it has fallen around 25%.
The Allkem Ltd (ASX: AKE) share price fell 5.7% over Thursday and Friday. The Liontown Resources Ltd (ASX: LTR) share price also declined, down 11%.
What happened to the ASX lithium shares?
Using the digital Battery Material Exchange (BMX) platform, Pilbara Minerals carried out its twelfth spodumene concentration (lithium) auction.
After the process, the company sold two cargoes — a combined total of 10,000 dry metric tonnes (dmt) at an average price of US$7,552 per dry metric tonne (dmt). This announcement was dated 14 December 2022.
Almost a month before, it sold a cargo of 5,000 dmt on the BMX. The company said that the highest bid was US$7,805. So, over that month, the business saw the price dip, after what had essentially been a year of rising prices at the digital auctions.
So, is this the peak of the lithium price and are ASX lithium shares worth buying?
Each lithium business has different contracts, different customers, and a different operational outlook. So, I'll focus on Pilbara Minerals shares, considering it was the company's lithium auction that may have started the current events.
Views on the Pilbara Minerals share price
The broker UBS thinks the lithium price could fall significantly from here over time, though the slightly-weaker auction price was much stronger than its long-term expectations. In any case, UBS prefers other ASX lithium shares. It rates Pilbara Minerals shares as a sell, with a price target of just $3.10, implying a further fall of more than 20%.
Morgans recently upgraded the rating to add, with a price target of $4.70. That implies a possible rise of more than 10% from here. It thinks the market overreacted to the auction result, though acknowledged that the share price could fall further. But, the broker suggests the upcoming financials and cash returns to shareholders could be a boost.
The broker Macquarie is still very bullish, with an outperform rating and a whopping price target of $7.60. That suggests a possible rise of more than 80% over the next year. It notes Pilbara Minerals is very profitable with the current price it's achieving.
I think that the Pilbara Minerals share price reaction has been an overreaction, for now. But, if the lithium price were to fall heavily then that would obviously be bad news. With lithium demand expected to rise in the coming years, and supply taking time to come online, I don't see a high chance the lithium price will get back down to less than US$2,000 any time soon.
For me, the Pilbara Minerals shares are ones to own for the long term, though 2023 could be a bit volatile.
