It has been a good week so far for ASX lithium shares, with a number of industry players racing higher.
The catalyst for this has been news of a mine closure in China, which has sparked hopes that this could be the start of more and ultimately underpin a rebound in lithium prices.
The team at Macquarie has been looking into the development and has given its verdict on a number of ASX lithium shares. Let's see what the broker is saying.
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Mine closure
Macquarie highlights that the mine closure is likely to cause disruptions but concedes that not a lot is known at this stage. It said:
CATL has suspended production at a major lithium mine in China's Jiangxi for at least three months, according to Bloomberg (link). While CATL has not made an official announcement, we see mining disruptions at Jianxiawo likely in the near term. However, we also note refineries may not be impacted and could continue to operate using stockpiles. The quoted "three-month shut" could be indicative only and would be dependent on lithium futures prices, in our view.
The broker has also warned that there is a danger that any ASX lithium share rallies in the near term could quickly reverse. It adds:
The 2024 lithium market was driven by industry expectations, reflecting demand and supply fundamentals, while this time, it is being driven by macroeconomic sentiment fuelled by anti-involution policies. Capital markets via futures contracts appear to be a greater driving force currently in than industry supply and demand fundamentals. If the production suspension expectations are not met, sentiment could quickly reverse. A market re-pricing demand and supply again could result correction in lithium equity names, in our view.
Nevertheless, it concedes that "near-term spodumene price strength presents upside to our EBITDA and earnings estimates for major lithium producers under our coverage universe."
Which ASX lithium shares are buys?
There are three ASX lithium shares that Macquarie is currently positive on.
The first one is IGO Ltd (ASX: IGO). The broker has an outperform rating and $5.00 price target on its shares.
Lithium giant Pilbara Minerals Ltd (ASX: PLS) also makes the cut. It has an outperform rating and $1.90 price target on its shares.
And finally, the broker has an outperform rating and 2 cents price target on Sayona Mining Ltd (ASX: SYA).
One miner that doesn't make the cut is Liontown Resources Ltd (ASX: LTR). Macquarie is bearish on this one and has an underperform rating and lowly 60 cents price target on its shares.
In respect to Liontown, the broker said the following last week:
Underperform: The deleveraging of the balance sheet through additional equity is positive and alleviates LTR's balance sheet overhang, and while we think the underground ramp up should go well, we retain Underperform on valuation grounds.
