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ASX lithium stocks have been on a wild road this week.
ASX lithium stocks have been some of the best index results over the past year. This superior performance has been driven by rising lithium prices, with the metal battery in high demand for its crucial role in powering electric vehicles (EVs).
But ASX’s lithium shares fell on Wednesday as investors were shocked by Goldman Sachs’ bearish lithium price forecast. The broker believes the sector is overinvesting with the oversupply that will hit the market over the next few years and predicts “a strong correction of lithium”.
News of legendary investor Warren Buffett’s intention to buy six lithium mines in Africa through electric vehicle company BYD may also have caused investors to fear a possible oversupply of conductive metal light.
On Wednesday, the share price of Allkem Ltd (ASX: AKE) lost 15.4%; IGO Ltd (ASX: IGO) closed up 12.7%; Pilbara Minerals Ltd (ASX: PLS) fell 22.4%; and shares of Mineral Resources Ltd (ASX: MIN) fell 8.1%.
All four ASX lithium stocks are green today.
But if Credit Suisse is right, they will have more headwinds.
What does Credit Suisse expect for supply and demand?
Credit Suisse analyst Matthew Hope said fugitive lithium prices have seen an increase in new lithium introduced to the market while increasing the cost of batteries used in the metal, “thus encouraging supply and destroying demand “.
According to The Australian, Hope believes that the dynamics of supply and demand will be in balance between 2023 and 2024, adding that “surpluses are threatening from 2025”.
According to Hope:
We used to think that the deficit was insoluble, but the world has changed with inflation, war and confinement exacerbating the prospects for demand, while the pace of supply response to rising prices has been more faster than expected.
What this might mean for ASX lithium stocks
In addition to its forecast that lithium markets will face a period of oversupply, Credit Suisse has downgraded Allkem to a neutral rating. He lowered his Allkem share price target by 10% to $ 14.70. That’s still 24% above the current $ 11.86 price point, at the time of writing.
Credit Suisse also downgraded Pilbara Minerals to neutral. Its target price for the ASX lithium stock fell 19% to $ 3, an increase of 25% over the current Pilbara stock price of $ 2.40.
Both Mineral Resources and IGO maintained their credit rating above Credit Suisse.
The broker’s target price for mineral resources is $ 73, 22% above the current price of $ 59.92. While involved in lithium production, Credit Suisse marked the company’s diversified operations outside the lithium space. This includes its mining services segment and gas projects.
Credit Suisse maintained IGO as a superior performance. He cited its low lithium production costs and its intentions to increase the Kwinana project as offering headwinds. Located in Western Australia, Kwinana is one of the world’s first fully automated battery-grade lithium hydroxide plants. Credit Suisse has a target price of $ 15.60 for the ASX lithium stock, 30% above the current IGO share price of $ 11.97.