If you look at the worst-performing companies in the S&P/ASX All Ordinaries Index (ASX: XAO) over the past year, you'll see lithium shares scattered throughout. But a sudden electrifying comeback in the sector since Wednesday is repairing part of the damage.
The resurgence in miners of the key battery material was broadly attributed to reports of a shutdown by one of China's largest lithium mines. As previously covered, Contemporary Amperex Technology Co Ltd, commonly known as CATL, abruptly closed its lithium operations in Jiangxi province — accounting for approximately 6% of global supply.
It's music to the ears of investors in ASX lithium shares, with the move possibly reducing further downward pressure on the material's price.
While CATL's closure may have been an initial prompt, some analysts argue the enormous response in share prices comes down to a different trigger.
Running for cover
On Wednesday, shares in Pilbara Minerals Ltd (ASX: PLS) and Mineral Resources Ltd (ASX: MIN) leapt 13% and 16%, respectively. Both lithium miners have enjoyed further gains in value in the days since. Yet, CATL's decision mightn't deserve all the credit.
Speaking to The Australian Financial Review, Ben Cleary of Tribeca Investment Partners said:
The rally we're seeing today is almost 100 per cent short-covering. Supply coming out of the market is exactly what the lithium market needs, so there is plenty of room for this rebound to run given how hard the stocks have been hit.
This claim may be illuminated by next week's short position data from the Australian Securities & Investments Commission (ASIC). Data on short-selling is always one week behind, so currently available information on the most shorted ASX shares relates to the 10th of September (a day before the uptrend).
The reference points for ASX lithium shares include:
- Pilbara Minerals short interest of 20%
- Liontown Resources Ltd (ASX: LTR) short interest of 11%
- Sayona Mining Ltd (ASX: SYA) short interest of 9.8%
Is this the bottom for ASX lithium shares?
Investors often contemplate if the low is in the rearview mirror when shares begin rallying from a low. It's a speculative undertaking to try and guess if lithium prices will trend up from here, but many analysts are making their best guess.
Citi believes the price of the energising material could surge 25% in the next months due to CATL's mine suspension. However, the investment bank's analysts temper this with concerns about supply being available to readily respond to higher prices.
Bloomberg commentary on Friday voiced a cautious view on the demand side of the equation. Several automotive manufacturers are unplugging their earlier electric vehicle goals, often substituting with a greater focus on plug-in hybrids.
Despite these concerns, numerous ASX lithium shares continue to power ahead today. Shares in Pilbara Minerals are up 0.8%, Mineral Resources are 1.4% higher, and Liontown Resources shares are 0.7% ahead, at the time of writing.
