S&P/ASX 200 Index (ASX: XJO) lithium shares have been staging a remarkable rebound in recent weeks.
As you're likely aware, virtually every ASX lithium stock large and small got walloped in 2023 as lithium prices crashed some 80% from their November 2022 highs.
This came as the global supply growth of the battery-critical metal outpaced the world's demand growth.
However, with some producers having reduced or entirely paused lithium production and with EV demand still growing (albeit at a slower pace) there are early signs of a turnaround.
While prices remain well below the late 2022 highs, lithium carbonate prices are up around 5% so far in 2024.
And that improving outlook has helped spur a big recovery for these battered ASX 200 lithium shares.
Here's how they've performed over the past month:
- Pilbara Minerals Ltd (ASX: PLS) shares are up 32%
- Core Lithium Ltd (ASX: CXO) shares are up 34%
- IGO Ltd (ASX: IGO) shares are up 22%
- Liontown Resources Ltd (ASX: LTR) shares are up 51%
For some context, the ASX 200, which notched new all-time highs today, has gained 6% over this same period.
But even with these outsized gains in the bag, there could be more outperformance ahead for ASX 200 lithium shares.
Here's why.
Chinese demand could fuel ASX 200 lithium shares
Much as with iron ore (and many of Australia's top commodities), the ebb and flow in demand from China has a major impact on spot prices.
When it comes to lithium, China is the world's top EV producer and also leads the world in battery production.
So it's not surprising that higher-than-expected Chinese EV demand in February has Macquarie Bank analysts bullish on lithium demand.
In what could be good news for ASX 200 lithium shares for the remainder of 2024, Macquarie said (quoted by The Australian Financial Review), "We believe lithium demand growth could outpace that of batteries in 2024."
Indeed, some Chinese battery manufacturers have upped their production by up to 80% over the past month.
"We believe that the significant month-on-month increase in battery production plans in March may indicate that demand is better than market expectations," they said.
"The spot price has shown an early sign of improvement," Macquarie's analysts added.
Chilean-based Sociedad Quimica y Minr de Chile (NYSE: SQM), which has operations in Western Australia in a partnership with Wesfarmers Ltd (ASX: WES), has not been immune to 2023's lithium price crash, with profits in the December quarter down sharply.
But SQM CEO Ricardo Ramos (quoted by the AFR) believes demand will increase in the second half of 2024, potentially sending the lithium price up by 20% from current levels.
"We foresee stable prices in the short-term … we are more optimistic, more positive, for the second half of this year," Ramos said.
A 20% increase in the lithium price could see the past month's rebound in ASX 200 lithium shares continue apace.
