Every other week it seems that there's another ASX lithium share trading on the Australian share market.
And while many lithium shares have proven to be very successful investments, the industry's outlook has changed recently and uncertainty is starting to creep in regarding future prices of the white metal.
The likes of Allkem Ltd (ASX: AKE) and Pilbara Minerals Ltd (ASX: PLS) are printing money right now thanks to sky high prices for the battery making ingredient, but will this be the case when explorers like Aruma Resources Ltd (ASX: AAJ), Azure Minerals Ltd (ASX: AZS), and Red Dirt Metals Ltd (ASX: RDT) finally dig something out of the ground?
Goldman Sachs doesn't appear to believe it will be the case. This week, the broker reiterated its view that it believes lithium prices will start to tumble from the second half of 2023. This is supported by recent weakness in lithium futures contracts. Its analysts explained:
Our commodity team expect lithium prices through 1H23 to reflect the near-term tightness and lagging spodumene contract price pass-through (highlighted by PLS' recent offtake repricing) before declining over 2H23, where we note 2024 futures have continued to pull back. While we see earnings support for the Australian stocks over 12-18 months on price lags, we expect lithium stock prices to reflect lithium commodity price movements as prices decline from record peaks.
Lithium price forecast
Goldman is now forecasting the following average prices for these lithium types in the coming years compared to current spot prices:
- Lithium carbonate (per tonne)
- Spot: US$66,750
- 2023: US$53,300
- 2024: US$11,000
- 2025: US$11,000
- Lithium hydroxide (per tonne)
- Spot: US$76,650
- 2023: US$58,650
- 2024: US$12,500
- 2025: US$12,500
- Lithium spodumene 6% (per tonne)
- Spot: US$5,990
- 2023: US$4,330
- 2024: US$800
- 2025: US$800
Are these forecasts absurd?
When you look at the prices above, you might be forgiven for thinking that Goldman Sachs' analysts have made a huge mistake. How could prices collapse so much?
But the reality is that these forecasts are more than realistic. In fact, the prices are still better than what lithium was commanding in 2020.
At that point, the different lithium types were commanding the following per tonne:
- Lithium carbonate – US$6,943
- Lithium hydroxide – US$9,978
- Spodumene 6% – US$429
So, while it would be a huge drop from current spot prices, it isn't inconceivable that this could happen if supply starts to outpace demand.
All in all, these are interesting times for ASX lithium shares.
