Pilbara Minerals Ltd (ASX: PLS) shares have surged well into the green on Wednesday and now trade 15% higher at $2.69 per share.
Today's spike stalls a three-month downtrend, with investors ignoring the gloomy outlook for lithium prices.
Lithium carbonate trades 62% lower per tonne compared to this time last year, and projections for the sector continue to tighten.
But investors are brushing off these concerns with Pilbara Minerals today, pushing the stock to a solid rebound. Let's take a look.
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Lithium market struggles
The lithium market is currently facing a number of headwinds. And analysts are beginning to chime in.
RBC Capital Markets cut its spodumene price forecasts for the fourth quarter by 32%, expecting prices to average just $US949 per tonne, according to The Australian Financial Review.
For 2024, RBC sees spodumene prices hovering around $US1,075 per tonne, significantly lower than its previous estimates of $US1,550. This could impact Pilbara Minerals shares.
This downgrade reflects weaker-than-expected demand from China, Europe, and the US, as well as the fact that electric vehicle (EV) sales have slowed, and unsold inventories have risen.
The slow pace of EV adoption has sent ripple effects throughout the sector.
Automakers like Volvo, Mercedes-Benz, and Toyota have scaled back their EV targets. The firms have cited supply chain disruptions and consumer concerns about charging infrastructure and range as key reasons for the demand slump.
Hybrid vehicles are gaining more traction, which could further slow down the transition to fully electric cars.
This has led to softer demand for lithium, seeing as it is a critical component of EV batteries.
Despite this, Pilbara Minerals shares are heavily bought today, potentially signalling that investors see value in the stock at its current price.
Pilbara Minerals shares: Future growth?
Despite the global lithium price slump, Pilbara increased its total production by 17% in FY24 to 725,300 tonnes.
This came as revenues dropped 69% year over year, thanks to the price weakness, which led to a 86% fall in net profit.
Even still, the company maintained its production growth in FY24 and is working on ways to ride out the lithium price slump.
This includes securing a $1 billion debt facility to enhance liquidity and fund future expansion.
Consequently, analysts are divided on the outlook for Pilbara Minerals shares. Bell Potter has a hold rating on the stock, with a price target of $3.15. This implies a potential upside of around 17%.
It is encouraged by Pilbara's low-cost production and solid balance sheet, which could help the company weather the lithium market downturn.
However, other analysts remain cautious. According to CommSec, consensus on Pilbara is mixed, with 44% of brokers covering the stock rating it a buy.
But investors are on the bullish side today and continue driving up Pilbara Minerals shares.
Foolish takeaway
Pilbara Minerals shares have ignored a weaker lithium outlook and shot into the green. Investors may be looking past the current cycle or seeing value at current prices.
The stock is down 42% in the last year.
Editor's note: A previous version of this article quoted 707,100 tonnes of production in FY24. This has been revised to the correct 725,300 tonnes.
