ASX 200 lithium shares: 'A great opportunity to buy into weakness'?

A tumbling price for the battery-critical metal from November through April threw up some strong headwinds for ASX 200 lithium shares.

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Key points

  • ASX 200 lithium shares came under pressure amid a 70% five-month plunge in lithium prices
  • With EVs and grid storage batteries forecast to continue rapid growth, lithium prices could be on the way back up
  • After falling in recent months, the big ASX lithium miners are starting to look like bargains

S&P/ASX 200 Index (ASX: XJO) lithium shares delivered some stellar returns in 2021 and right on through to November 2022.

With lithium demand outpacing supplies, the battery-critical metal was fetching ever higher prices. And investors reacted by driving up the share prices of all the big lithium stocks.

The lithium price reached record highs in mid-November before beginning a steep five-month slide, fuelled by fears of surplus supplies and weaker demand out of China, the world's top battery producer.

By the time the price found a floor on 24 April, it was down some 70% from the peak.

How have ASX 200 lithium shares performed amid the pullback?

As you'd expect, a fast-falling price for the battery metal threw up some strong headwinds for ASX 200 lithium shares.

Here's how these five top miners have fared over the past six months:

  • Pilbara Minerals Ltd (ASX: PLS) shares are down 3%
  • Core Lithium Ltd (ASX: CXO) shares are down 20%
  • Allkem Ltd (ASX: AKE) shares are up 2%
  • IGO Ltd (ASX: IGO) shares are down 7%
  • Mineral Resources Ltd (ASX: MIN) shares are down 11%

But things could be looking up for ASX 200 lithium shares as a number of analysts are taking a more bullish outlook on global EV production and the expansion of grid storage batteries.

Indeed, since 24 April, the lithium price has rebounded by more than 20%.

Does the recent weakness present a buying opportunity?

A senior private wealth adviser with Sequoia Wealth, Shane Langham, believes the ongoing growth in EVs is likely to see the lithium price – and, by extension, ASX 200 lithium shares – enjoy a big rebound.

"I don't see lithium as a one-off flash in the pan. The demand for lithium carbonate, or battery-grade lithium, is increasing at a rapid rate because of the rate of EV production increases," Langham said (quoted by The Australian Financial Review).

Langham also points to the demand growth story from grid storage batteries:

That doesn't even touch on the big batteries used to support electricity grids or to store renewable electricity generated by solar or wind or the like. When the supply and demand equation is so lopsided, where demand is multiples the size of the supply, price can do only one thing, and that is rise.

And with ASX 200 lithium shares taking a beating from November through to late April, Langham said now could be an opportune time to buy:

Given we have seen the price for lithium drop 72% from the high in November 2022, this, to me, looks like not just a good opportunity but a great opportunity to buy into weakness for a very bright future to 2030 and beyond.

Senior portfolio manager at Janus Henderson, Darko Kuzmanovic, also sees lithium demand fuelling long-term success for ASX 200 lithium shares.

"This is a structural and long-dated, decades long theme, that has just begun," he said.

Kuzmanovic added:

Over the last five to six years, lithium demand has fluctuated at a compound annual growth rate of 25% per annum. This is expected to continue until EVs become the dominant type of vehicle.

At current prices, the industry will continue to make great returns. While it is still early to say, a bottom could emerge by mid-2023, assuming normal markets and no global recession.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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