S&P/ASX 200 Index (ASX: XJO) lithium shares were among the best performers on the index in 2022.
Well, at least up through November. That's when lithium prices hit all-time highs, having leapt more than 1,250% in just two years.
But 2023 has seen lithium stocks come back to earth as the price for the battery-critical metal they dig from that earth has tumbled.
Today, the leading ASX 200 lithium shares are again underperforming the benchmark index.
The ASX 200 is down 0.7% in afternoon trade, following US markets lower in the wake of the latest interest rate increase from the US Fed.
Here's how the top lithium stocks are tracking at this same time:
- Pilbara Minerals Ltd (ASX: PLS) shares are down 5.1%
- Core Lithium Ltd (ASX: CXO) shares are down 5.1%
- Allkem Ltd (ASX: AKE) shares are down 3.8%
- IGO Ltd (ASX: IGO) shares are down 1.7%
- Mineral Resources Ltd (ASX: MIN) shares are down 2.5%
So, why are ASX 200 lithium shares under extra pressure today?
Why are ASX 200 lithium shares falling today?
Most of the selling action looks to be related to concerns that the lithium price has further to fall.
And this comes after the price for the 'white gold' has already halved since November's record highs, with lithium currently trading at the lowest levels in 14 months.
That's cutting into the profitability of ASX 200 lithium shares and is giving some investors pause.
As a BloombergNEF report noted, "Lithium carbonate prices saw a greater rate of decline as greater supply growth outlook for the year coincides with weaker demand sentiment."
Supply and demand dynamics
On the demand side, 2022 saw Chinese battery manufacturers ramp up production to take advantage of government subsidies, which have now been wound down. China's government is also ending subsidies for EV purchases. The combination is expected to see a material reduction in lithium demand.
On the supply side, soaring lithium prices encouraged a wave of resource explorers to turn their sights on the battery-critical metal. All while ASX 200 lithium shares have moved to expand their own projects.
A number of new, large-scale projects are coming online over the coming months, including Core Lithium's Finniss Project in the Northern Territory.
That leads Nio Inc's CEO, William Li to forecast that the lithium price has further to fall, believing the price will "quite likely" drop to around 200,000 yuan or less in the fourth quarter of 2023.
That's down from the recent price of 295,000 yuan per tonne.
"Starting from this year, we are going to see more output from upstream. We believe demand probably is not going to be that strong compared with the past," Li said (quoted by Bloomberg).
If the battery-critical metal does indeed face another 30% plus slide by Q4 2023, ASX 200 lithium shares will likely continue to come under pressure.
Longer-term, any retrace in the big lithium miners' share prices could prove to be a profitable entry point, with global lithium demand still forecast to continue growing strongly over the next decade.
