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Are lithium stocks overcharged?

In October, Joe Biden called climate change an existential threat to the environment, health, and the economy, and has promised a clean energy revolution to counter it. Since the President-elect’s comments, ASX lithium shares have rallied significantly.

Pilbara Minerals (PLS), Galaxy Resources (GXY), and Orocobre (ORE) share prices have all posted long-term highs, with monthly gains reaching 60-70%.

Despite the advance in local stocks and global sentiment towards reducing carbon emission, lithium price changes have been muted. Benchmark analysts, Fastmarket’s November update noted the following market & price developments:

  • China’s battery-grade lithium carbonate prices moved up following increases from producers

  • China’s industrial-grade lithium carbonate prices firmed up on tight supply

  • China’s lithium hydroxide prices drifted lower on limited domestic demand

  • Asian battery-grade lithium prices kept unchanged this week under a flat spot market

Despite the marginal and mixed movements, lithium prices remain at multi-year lows, largely due to a current oversupply of the resource.

Whether the recent advance in ASX stocks is a sign of things to come or merely a short-lived period of hype, will depend on whether the push to greener alternatives, gains enough traction to dent supplies.

Many European countries are now offering subsidies on the purchase of electric vehicles as a means for personal travel in light of COVID-19 challenges. In the U.S., Joe Biden has a starkly contrasting focus on renewable energy, with several initiatives planned, including re-joining the Paris Climate Accords, reducing fossil-fuel subsidies, eliminating solar tariffs and significant investment into clean energy.

These tailwinds certainly bode well for the demand of lithium supplies.

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