From early 2021 through to late 2022 most all S&P/ASX 200 Index (ASX: XJO) lithium shares enjoyed exceptionally strong runs.
This came amid booming demand for the battery-critical metal, which saw the lithium price reach record highs in November 2022.
But as supplies ramped up and demand from China's crucial EV market faltered, lithium prices came back to earth.
As you'd expect, this has seen most ASX 200 lithium shares retrace over the past year.
Here's how these top lithium stocks have performed over the 12 months:
- Pilbara Minerals Ltd (ASX: PLS) shares are down 14%
- Core Lithium Ltd (ASX: CXO) shares are down 70%
- Allkem Ltd (ASX: AKE) shares are down 19%
- IGO Ltd (ASX: IGO) shares are down 22%%
Following that retrace the next year may well see a rebound for select ASX 200 lithium shares. But as market dynamics shift, investors should choose wisely.
Why the lithium price is unlikely to retake its 2022 highs
The end of 2022 saw 80% of lithium go into batteries. And EVs made up 60% of global lithium demand.
But according to the latest research report from Antares Equities, incremental lithium demand growth is unlikely to return to the heady days of 2021 and 2022.
Antares notes that incremental lithium demand "is the primary driver of the demand-supply balance in the lithium market and spot prices".
According to the report, there are three reasons why investors will need to be more selective in the years ahead when buying ASX 200 lithium shares.
Namely these three core aspects that drive lithium demand in the EV industry:
- Technology advancements in the industry
- The growth of new EV sales
- The average battery pack size in EVs
As for the growth rate, EV sales increased by more than 100% in 2021, with growth slowing to 70% in 2022. The first half of 2023 saw EV sales growth fall to 50%.
Antares analysts expect the growth rate of new EV sales to stay in the range of 50% to 60% in 2023 "with potential upside risks in 2024 and 2025".
The trend to smaller battery packs could also pressure the lithium price and throw up headwinds for ASX 200 lithium shares in the years ahead.
Antares notes that "the average size of battery packs reached its peak level in 2020". The analysts said they believe the strategy of EV manufacturers "blindly increasing the size of battery packs has gradually become a thing of the past".
And on the technology front, Antares said that "technological evolution is likely to have a neutral impact on lithium demand".
What to look for with ASX 200 lithium shares
All told, Antares expects that "incremental lithium demand in the EV sector reached its peak level in 2022 and 2023".
The analysts noted that this suggests "pressure on the lithium price has also peaked as EV related lithium has been a key driver for global lithium demand".
As for ASX 200 lithium shares, Antares said "there will be a greater need to be selective rather than buying anything with a whiff of lithium exposure".
The report concludes:
Our current analysis favours lower cost producers, those which are more efficient in pipeline development and those whose strategy is most likely to capitalise on broader market trends. We have avoided (or shorted where possible) stocks that have higher costs and / or are more technically risky.
