The S&P/ASX 200 Index (ASX: XJO) lithium share sector is facing a lot of uncertainty in 2023. Which way is the lithium price going to go?
Investors pushed up a number of ASX lithium shares during 2022. For example, the Pilbara Minerals Ltd (ASX: PLS) share price rose by 17% over the year. However, I think it's worth noting that Pilbara Minerals shares dropped 32% from 9 November 2022 to the end of the year.
It was a similar story for other ASX 200 lithium shares. Allkem Ltd (ASX: AKE) shares fell by 31% from 14 November 2022 to the end of 2022.
The Core Lithium Ltd (ASX: CXO) share price dropped by 45% between 14 November 2022 and the end of the year.
The Lake Resources N.L. (ASX: LKE) share price fell 32% from 14 November 2022 to the end of the year.
It was also a painful fall for the Liontown Resources Ltd (ASX: LTR) share price, which dropped 40% from 14 November to the end of 2022.
I think it's important to keep share price movements in mind because the starting valuation point for these companies is part of the equation deciding whether 2023 ends up showing a gain or a fall.
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Strong longer-term outlook
It is notoriously difficult to predict where commodity prices will go in the short term.
The extensive run-up of the lithium price over 2022 was quite unpredictable. But, experts do see demand continuing to grow for the sector. Therefore, the outlook for ASX 200 lithium shares in the foreseeable future appears promising.
Accounting and advisory business KPMG has outlined that there are only around 15 million electric vehicles in the world at the moment, being 1% of the global total. It suggests that 2 billion electric vehicles will be needed by 2050 to transition away from the internal combustion engine by 2050.
KPMG said:
The pace of EV sales is increasing with nearly half of the current stock of EVs sold in the last year. But the transition away from fossil fuels will continue to require a rapid increase in the number of EVs manufactured. On that basis the production of critical minerals used in battery technologies will also need to increase substantially.
Global production of lithium was around 550kt of lithium carbonate equivalent and that is forecast to rise to 1,000kt by 2024. At that level it would take around 100 years to produce enough lithium to have 2 billion lithium-ion EVs in service.
While the lithium price may not keep climbing to a higher and higher level over 2023, but the lithium miners can still generate strong profit and cash flow at the current lithium price.
My view on the ASX 200 lithium shares
I am optimistic about the outlook for the lithium sector. While there has been some uncertainty about the lithium price, it's still very good.
Pilbara Minerals reported on 14 December 2022 that it had completed price reviews with major offtake customers, resulting in improved pricing outcomes, equating to an average price of approximately US$6,300 per dry metric tonne (dmt).
After the significant decline of the Pilbara Minerals share price over the last couple of months, I think the ASX 200 lithium share looks much more compelling.
It can generate good profits at these prices, it has a very strong balance sheet, it's investing for increased production and expansion into more of the lithium value chain, and as a bonus, it's going to start paying dividends.
