S&P/ASX 200 Index (ASX: XJO) lithium stocks are shrugging off some potentially concerning news about the outlook for the battery-critical metal. At least for now.
We'll get to that news in a tick.
First, here's how the top five lithium shares are performing in afternoon trade today:
- Pilbara Minerals Ltd (ASX: PLS) shares are up 2.4%
- Core Lithium Ltd (ASX: CXO) shares are up 2.7%
- Allkem Ltd (ASX: AKE) shares are up 5.2%
- IGO Ltd (ASX: IGO) shares are up 2.8%
- Mineral Resources Ltd (ASX: MIN) shares are up 3.49%
Looks like greed is trumping fear for investors in ASX 200 lithium stocks today.
But should they be concerned?
Why this 6% decline in China matters for ASX 200 lithium stocks
China produces approximately 75% of the world's lithium-ion batteries each year.
And the Middle Kingdom boasts by far the largest production and sales figures for EVs of any nation on Earth.
In December alone, the China Automobile Association reported China produced 795,000 EVs. And the nation's dealers dipped into their inventories, with a whopping 814,000 EVs sold.
The story was much the same throughout 2022. And this surge in demand helped drive lithium prices to all-time highs last year. Since that peak, prices have retraced some 30%. But many analysts are forecasting they could have further to fall.
The decline is partly demand related.
As Reuters reports, January saw a 6.3% decline in sales of EVs and plug-in hybrids in China. That's after the sector grew 90% in 2022.
Commenting on the potential impact, Barrenjoey analysts said, "While we remain positive on the long-term outlook for lithium, the short-term outlook is less clear, with a clear acceleration in China EV sales needed to allay market fears."
January's decline is likely linked to the government's plan to end subsidies for EVs. But it's fuelling concerns that demand growth may slow just as supply growth looks set to explode.
Too much lithium?
ASX 200 lithium stocks could come under pressure more from a potential excess supply hitting the markets than from any big fall in demand.
And some analysts are forecasting this will see prices for the battery-critical metal continue to fall.
Chinese spot prices for lithium carbonate have dropped from some 600,000 yuan ($128,000) per tonne at the November peak to around 400,000 yuan ($86,000) today.
Commenting on market dynamics, vice president at Rystad Energy Susan Zou said (as quoted by Reuters):
Demand is still healthy, but battery and EV makers are currently destocking instead of placing new orders. The subdued spot demand therefore is weighing on sentiment and pressing down prices..
A lithium carbonate price of 200,000-300,000 yuan per tonne is where both upstream and downstream will feel comfortable.
"Supply is coming on stream faster than you can say 'boo'," Ord Minnett analyst Dylan Kelly added. "Demand remains strong, but prices have been unsustainable for some time now."
Indeed, many lithium miners are not yet at the production stage. As they do begin producing, global supplies will ramp up.
Even among the ASX 200 lithium stocks, only Allkem, Mineral Resources, and Pilbara Minerals are currently producing.
Core Lithium looks to be next in line. Maiden spodumene concentrate production from its Finniss Lithium Project is expected to commence in the first half of 2023.
