Why are lithium shares dominating the ASX index on Friday?

Excitement towards ASX lithium shares has been spreading like wildfire on Friday.

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The S&P/ASX 200 Index (ASX: XJO) is on pace to snap a three-day losing streak on Friday, buoyed by the mining sector. Within the mining cohort, lithium shares are prominently featured among the best performers today.

Surprisingly, enthusiasm for lithium miners is in abundance despite prices for the electrifying commodity remaining near 52-week lows. According to Trading Economics, the going rate for lithium carbonate is approximately US$22,810 per tonne, more than 70% below the high set in November 2022.

The pre-eminent ASX index is up 0.52% as we sprint toward the close. However, several lithium companies are touting gains in excess of 5% today. So, what is driving the unmatched excitement toward this basket of critical commodity suppliers?

Promising signs for lithium shares

Before we delve into what could be behind the impressive performance across lithium companies today, here are a handful of names putting the ASX index to shame:

The best performer among the bunch is Core Lithium, rocketing higher after releasing its FY2023 results this morning.

Until today, Core had failed to produce a profit while the company was in its exploration stage. However, that all changed with its latest full-year results. In FY23, Core Lithium generated $50.6 million in revenue and $10.8 million in net profit after tax after successfully reaching production.

Core managed to sell 5,432 tonnes of spodumene concentrate at an average realised price of US$4,163 per tonne. For context, Pilbara Minerals Ltd (ASX: PLS) achieved an average realised price of US$4,447 per tonne during FY23.

Today's widespread positivity toward the lithium sector could partly be a result of Core Lithium's ability to reach production and turn a profit. Additionally, investors might be taking on board recent optimistic comments from Macquarie analysts.

The broker rattled off several lithium shares it currently sees value in amid suppressed share prices. Some of these included Piedmont Lithium Inc (ASX: PLL), Mineral Resources Ltd (ASX: MIN), and IGO Ltd (ASX: IGO), among many others.

Liontown Resources Ltd (ASX: LTR) was one lithium miner not considered as a possible outperformer by Macquarie. Ironically, the takeover target is one of few companies in the sector seeing its share price fall on Friday after disclosing increased project costs.

What portion of the ASX 200 index is exposed to lithium?

You might think the strength in ASX lithium shares would be reflected in a more impressive gain on the benchmark today. While it certainly doesn't hurt, the sector's impact on the ASX 200 is minimal.

If you were curious how much weighting the main ASX index has toward lithium, look no further.

Based on market capitalisation, lithium companies currently make up 1% of the entire ASX 200. Hence, even significant rises in companies like Allkem Ltd (ASX: AKE) and Core Lithium fail to really move the needle.

Motley Fool contributor Mitchell Lawler 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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