It's no secret that S&P/ASX 200 Index (ASX: XJO) mining companies usually rely on commodity prices – and it's no different in the lithium space.
Lithium producers do just that, produce lithium. They then generally turn to the market to sell that lithium, hoping to snag a good price for their efforts.
And there's been one interesting pattern this year that might just signal a new 'golden era' for lithium prices, according to an industry insider.
That is, global giants forking out billions to bolster their battery-making capabilities.
No doubt, such an era would be good news for the bottom lines of ASX 200 lithium producers like Pilbara Minerals Ltd (ASX: PLS), Allkem Ltd (ASX: AKE), Core Lithium Ltd (ASX: CXO), and Mineral Resources Ltd (ASX: MIN).
It could also help boost sentiment for ASX 200 lithium hopefuls such as Liontown Resources Ltd (ASX: LTR) and Lake Resources NL (ASX: LKE).
Let's find out why one industry insider is bullish on the battery-making material despite its recent price suffering.
Could this bring a boom for ASX 200 lithium stocks?
Fans of ASX 200 lithium stocks would be hard-pressed to forget the near-$5.5 billion takeover bid Liontown Resources Ltd (ASX: LTR) quickly rejected last month. US$ 23 billion lithium giant Albemarle posed that offer.
It marked just one of many investments (or intended investments) in the lithium and battery space announced by global monoliths this year – a sign of a long-term "structural deficit for lithium", according to Pilbara Minerals CEO and managing director Dale Henderson.
Other recent major investments highlighted by the industry insider this morning included:
- General Motors' US$650 million partnership with Lithium Americas
- LG Energy Solution's US$5.5 billion commitment to a battery manufacturing facility in Arizona
- Ford's US$3.5 billion investment to build a lithium iron phosphate battery plant in Michigan
- BMW's 800 million Euro commitment to building an electric vehicle plant in Mexico
With electric vehicles considered "the key consumption driver" for the battery-making material right now, such investments by global giants might signal a boom in demand for lithium, Henderson says.
That all sounds great for lithium prices in the future. But, as readers might be aware, the material's value has been falling this year.
Indeed, ASX 200 lithium stock Pilbara Minerals reported a 15% quarter-on-quarter drop in its realised spodumene concentrate sales price, coming in at US$4,840 a tonne for the three months ended 31 March.
That downturn has been forecast to linger for months.
What's behind lithium's short-term pain?
Lithium prices have been sliding lower over the last few months amid a drop in Chinese demand for the metal, as my Fool colleague Bronwyn reported in late March.
The Chinese government announced its intent to stop providing subsidies for electric vehicles late last year. Additionally, car dealers are said to have slashed prices on traditional vehicles amid looming emissions standards.
All that, on top of Chinese New Year and prior inventory stocking, has dinted demand for the metal. Henderson noted today:
Our observation of the Chinese market is that it runs up hard as price does appreciate and it runs down hard as price declines, and it looks like we're seeing that again.
That might suggest lithium prices could soon shoot higher once more. Indeed, the CEO forecasts a potential recovery in the second half of 2023.
But not everyone agrees. Goldman Sachs previously tipped spot prices for the battery-making metal to crash in the years to come.
