If you're an owner of ASX lithium shares, then the price of the battery making ingredient will no doubt be very important to you.
That's because share markets are forward-looking, with valuations tied to the profits and free cash flow that companies generate down the line.
And with so many lithium shares still in the development or exploration stage, the price of lithium when they finally start producing will have a big say in the profits they make and whether your investment is ultimately a success or failure.
Lithium price forecast
Unfortunately, I have some bad news for you. Goldman Sachs has reiterated its extremely bearish view that lithium prices are about to crash materially from current levels.
And while it expects Allkem Ltd (ASX: AKE) to be able to offset the impact of these declines on its earnings with its production growth and downstream opportunity, it may not be as easy for smaller and up-and-coming players.
According to the note, 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$61,350
- 2023: US$53,300
- 2024: US$11,000
- 2025: US$11,000
Lithium hydroxide (per tonne)
- Spot: US$70,350
- 2023: US$58,650
- 2024: US$12,500
- 2025: US$12,500
Lithium spodumene 6% (per tonne)
- Spot: US$5,800
- 2023: US$4,330
- 2024: US$800
- 2025: US$800
Spot prices continue to fall
Earlier this week, the broker noted that spot and forwards prices have continued to come under pressure. It commented:
We note the lithium chemicals spot and forward pricing has continued to decline, with our commodities team reiterating their expectation for lithium prices to decline from 2H23, supported by recent China trip feedback suggesting risk of higher than expected lithium supply, and the larger operating Australian spodumene projects either recently outperforming production expectations (and increasing near term production guidance) or lifting medium term production growth targets.
