It wasn't the best financial year for Australia's ASX lithium shares.
As lithium prices plunged to a four-year low in FY25, Australia's lithium miners felt the impact.
The Pilbara Minerals Ltd (ASX: PLS) share price, currently around $1.35 per share, was hammered in FY25.
It's lost about 75% of its value since late 2022, when the company's shares were trading at around $5.37.
Similarly, the Mineral Resources Ltd (ASX: MIN) share price tanked in FY25.
In late 2022, Mineral Resources shares were trading at around $90 each.
Today, Mineral Resources shares are going for around $21.50 apiece, representing a decline of about 76% over the past few years.
Other lithium shares, including Liontown Resources Limited (ASX: LTR) and IGO Ltd (ASX: IGO), have also suffered lately.
An oversupply of lithium has kept prices low as mines increase output amid improved recovery techniques, particularly in China.
And it looks like supply will not be slowing down in the near term.
Still, things could be looking up for Australia's ASX lithium shares.
Relief in site?
According to the Department of Industry, Science and Resources, "rapid global lithium demand growth" is projected through to 2027.
The Department's latest Resources and Energy Quarterly report states that the "strong demand" will be fuelled by continued growth in electric vehicle and battery energy storage system uptake.
Global EV sales grew 28% in 2024 as more consumers in China opted for EVs.
New EV car sales increased by 10% in 2024 in China, accounting for 48% of all new car sales there.
And there is little sign of momentum easing for EV uptake.
By 2027, 2 out of every 3 cars sold in China are expected to be a battery electric or a plug-in hybrid vehicle, according to the report.
While the increased demand will ease oversupply concerns, it is not expected to fully absorb the current oversupply.
Still, the projected growth in export volumes will likely have a material impact on Australia's lithium export earnings.
Australia's lithium export earnings are forecast to increase from $4.6 billion in FY25 to $6.6 billion in FY27.
And Australian mine output is expected to increase by more than 7% a year to 2027.
Foolish Takeaway
Projections of increased earnings as demand increases and oversupply reduces will come as a welcome reprieve for Australia's lithium miners.
Still, the fortunes of Australia's lithium companies will continue to be largely determined by China, which imports 95% of Australia's lithium.
Lingering global trade tensions, ongoing improvements in production techniques, and more mines coming online are a few factors that will continue to impact lithium supply and prices.
As such, forecasts can change rapidly and investing in lithium shares comes with significant volatility.
