The lithium market, once a darling of the commodities sector, has faced a sharp correction in 2024. Prices have tumbled nearly 19% year-to-date, dragging down the value of most ASX lithium shares.
Electric vehicle (EV) sales climbed 26% in the first half of 2024. EVs are the main 'use-case' for lithium-ion batteries.
But an oversupplied market has left lithium miners grappling with shrinking margins and struggling to meet breakeven costs.
The challenges have been especially evident for Pilbara Minerals Ltd (ASX: PLS). The stock is down 43% this year and 23% in the past month alone.
Despite this, there's a handful of brokers who still reckon a rebound could be on the horizon in 2025. Let's see what's in store for Pilbara Minerals shares next year.
Can the lithium market recover?
To get a view on Pilbara Minerals shares, you first need to form a view on what the lithium market is set to do.
Analysts remain divided on the direction of lithium prices next year. UBS forecasts lithium spodumene prices to rise 17%, hitting US$800 per tonne in 2025.
Meanwhile, in August, Goldman Sachs had the same projections for spodumene next year, stretching up to US$978 per tonne in 2026.
But much of this hinges on whether supply and demand reach a healthier balance.
Producers like Pilbara Minerals have already made tough calls, such as temporarily taking over maintenance of the Ngungaju plant to curb oversupply.
But there's no escaping the fact that lithium is an essential component of the current form of batteries that EVs run on.
According to separate Goldman Sachs research, both the current leading battery types are "lithium based".
With prices at multi-year lows, Goldman says battery prices have fallen globally, making EVs slightly more attractive on a cost basis. This could drive demand higher, which could be positive for miners like Pilbara Minerals.
What's Pilbara Minerals' strategy for 2025?
Pilbara Minerals has taken a proactive approach to weathering the current downturn. At its recent AGM, Chairman Dale Henderson highlighted a few talking points for next year.
For one, the company's P1000 Project is now 80% complete, with first ore expected in early 2025.
In a move to spread geographically, Pilbara has also expanded its footprint beyond Australia, acquiring Latin Resources' Salinas Lithium Project in Brazil.
It also achieved its first lithium hydroxide production through its joint venture with POSCO in South Korea.
Despite this, analysts remain understandably split on Pilbara Minerals shares. In my view, this reflects the broader uncertainty in the lithium market.
And they are really split. Seven buy ratings and six holds, according to CommSec.
UBS has a bearish price target of $2.35 on the stock, citing concerns about oversupply and limited free cash flow generation.
Bell Potter is neutral with a target of $2.95, acknowledging some of Pilbara's strength in operations, but it too puts a red flag for market volatility.
But Morgans rates the stock a buy with a $3.25 target, noting the company's ability to scale production quickly if prices recover.
I guess the big difference splitting the hairs here is the "if price recovers" sentiment. A lot needs to happen for lithium to sell near its 2021 highs.
Foolish takeaway
Pilbara Minerals shares have tumbled lower in 2024, and investors have routinely shorted the stock as a result.
But all is not lost for the lithium player. It really depends on what the market for the battery metal does from here.
In the last 12 months, Pilbara shares are down 34%.
