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ASX’s lithium shares had been easily surpassing the benchmark since Anthony Albanese and the Labor Party swept Canberra last week.
With tougher labor commitments to reduce emissions, investors were rewarding producers of critical battery metal.
To this day.
By the end of the morning, some of ASX’s largest lithium stocks are in the red.
What depth?
The share price of Allkem Ltd (ASX: AKE) has dropped 12%; shares of IGO Ltd (ASX: IGO) have lost 13%; and the share price of Pilbara Minerals Ltd (ASX: PLS) has dropped 16%.
Ai.
So what’s going on?
Argentina and Goldman Sachs
It seems that Argentina, a nation with some of the largest known lithium reserves on Earth, is partly to blame.
According to The Australian, Argentina has set a reference price for lithium carbonate exports of $ 53 per kilogram. This happens after irregularities have been detected in the shipments during the last two years.
“The reference price strengthens the ability of customs to monitor exports and prevent under-invoicing,” Bloomberg said. This is said to help “avoid maneuvers that affect tax revenue and dollar sales.”
Separately, Goldman Sachs presented a medium-term bearish outlook for lithium prices that appears to be affecting ASX’s lithium shares today.
According to Goldman (courtesy of The Australian):
Given climate change, investors are fully aware that battery metals will play a crucial role in the global economy of the 21st century, just as bulk and basic metals did before. However, despite this exponential demand profile, we see that the bullish market for battery metals is over for the time being.
Crucially, with no previous large-scale demand or supply cycle behind them, these “new economy” commodities have avoided the investment trap of the “revenge of the old economy” of copper and aluminum.
In fact, the opposite has happened, with an increase in the capital of investors in supply investment linked to the history of long-term demand for electric vehicles, essentially trading a cash-driven commodity as a future equity.
This fundamental bad price has, in turn, generated a disproportionate supply response well ahead of the trend in demand. In this context, we see prices declining over the next two years, with a strong correction of lithium and, to a lesser extent, cobalt.
Not everyone is a bassist with ASX lithium stocks
Despite today’s sharp decline, long-term investors in major ASX lithium stocks will have little to complain about.
Over the past 12 months, the price of IGO shares has risen 46%; Allkem’s share price rises 85%; and Pilbara’s price rises by 100%.
And investors with long-term horizons may want to look to 2030.
According to Barrenjoey, “electric vehicles are poised to transform the lithium and nickel commodity markets. We anticipate that global electric vehicle sales will grow to 30 million by 2030, or about 30% of new car sales.” .