There is no sugar coating it.
The market darling of the last half-decade, lithium, had a shocker in 2023.
Fairmont Equities managing director Michael Gable, in a recent blog post, put it bluntly.
"Lithium carbonate and spodumene prices have collapsed about 80% this year."
So what's going to happen to all those portfolios that suffered from their ASX lithium shares plunging this year? Will 2024 bring better news?
Lithium price plunge is deja vu
The current situation with lithium reminds Gable of what happened to iron ore a decade back.
"Just like nearly 10 years ago with iron ore when Fortescue Ltd (ASX: FMG) was back to $2 and on its knees, investors in lithium are wondering when the Chinese 'high cost, low quality' producers will curtail production."
This panic has especially accelerated in the second half of this year.
"The past few weeks [have] seen the pace of selling pick up and bearish analysts turn more bearish," said Gable.
"My recent comments to clients and in the media was that we could be seeing some capitulation in the price."
"Capitulation" means maximum pessimism has been reached, and it's onwards and upwards from here.
There is no oversupply
Gable's bullish view is supported by the potentially improving economic conditions.
"The headlines suggest that demand is lower than expected, and that seems to be the story this year with China's recovery.
"But as highlighted earlier, improving PMIs out of the US and Chinese demand for iron ore and copper suggest that we could be at or near an inflection point."
He added that there is a false perception that there is an oversupply of lithium because of the announcements of new mining projects.
"Those that closely study lithium supply suggest that there actually hasn't been a surge in supply during the past year."
M&A interest means the big boys reckon there's value
While ASX lithium shares have been depressed in 2023, there has been some furious merger and acquisition activity.
This is a great sign that the market is at or near the bottom.
"Those close to the ground are seeing the need to add to their exposures before interest returns to the sector," said Gable.
"And just in the past few days, we have seen some massive rebounds in lithium stocks, which adds more weight to my idea that recent weakness was capitulation and we have seen the lows."
