The Pilbara Minerals Ltd (ASX: PLS) share price has continued its disappointing decline in the past year. As the chart below shows, the ASX lithium share has dropped more than 50% in the last 12 months.
After such a heavy decline, some investors may be thinking the ASX mining share is a turnaround opportunity.
It's better to buy a business when the price is low, but it's difficult to say if this is a good time to be a contrarian or not. Let's take a look at what's happening within the lithium sector right now.
Weakness for the lithium sector
In a recent note, the broker UBS said that the lithium market is still oversupplied, which is a negative for Pilbara Minerals shares.
A key challenge for lithium miners like Pilbara Minerals has been the weaker outlook for electric vehicles. UBS now expects the 2030 global EV penetration to be 41%, down from its previous estimate of 49%, due to weakness in the US and EU.
This has led to a reduction of the lithium demand by 12%, with the 2030 demand now expected to be 2.8mt. While battery demand is stronger than expected, it is only 18% of demand and insufficient to offset the revisions to EV expectations.
As the global lithium sector navigates its second cycle since the mainstream introduction of electric vehicles, there is a larger and more diverse supply side of the industry than it was last time.
While UBS expects more supply cuts, its lowered expectations of long-term demand require a lower long-term spodumene (lithium) price of US$1,200 per tonne.
The broker now only sees lithium demand growing at a compound annual growth rate (CAGR) of 13% to 2030.
Pessimism on Pilbara Minerals shares
UBS currently rates the ASX lithium share as a sell, with a price target of just $1.10. A price target is where the broker thinks the share price will be in 12 months time.
Therefore, the broker is suggesting Pilbara Minerals shares could fall by 19% in the next 12 months.
Based on what UBS is saying, I don't think it's a good time to invest.
However, it's possible that EV demand could pick up unexpectedly. Plus, Pilbara Minerals continues to have a solid balance sheet. But, I can't see how lithium demand turns around any time soon, so I'll be focusing my investment dollars elsewhere.
