ASX Lithium Stocks Tumble as ASX Continues Slump

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The S&P/ASX 200 [ASX:XJO] slumped for the fourth time in five trading days, with ASX lithium stocks falling steeply on Monday.

CommSecSource: CommSec

ASX follows Wall Street’s lead

Moves on Wall Street are often echoed elsewhere, as the US is seen as a bellwether equity market.

Action on Wall Street often acts as an indicator of the wider, global market sentiment.

Well, on Monday morning, the ASX 200 extended its loss from last Friday, as stocks also fell in Europe and Asia following a sell-off on Wall Street.

Nasdaq darling Netflix, Inc. [NASDAQ:NFLX] fell 20% overnight, while Shopify, Inc. [NYSE:SHOP] and Upstart Holdings, Inc [NASDAQ:UPST] both fell 13%.

With cryptocurrencies under recent selling pressure, US stocks exposed to crypto also fell.

MicroStrategy Incorporated [NASDAQ:MSTR[ was down 17% overnight. At the end of 2021, MicroStrategy held 124,391 bitcoins, acquired for about US$3.75 billion.

And Coinbase Global, Inc. [NASDAQ:COIN] was down 13% as the cryptocurrency exchange platform suffered in tandem with the falling crypto prices.

At the time of writing, the price of Bitcoin [BTC] is US$35,913, down nearly 30% in the last month.

Coin Market CapSource: CoinMarketCap

Lithium stocks cool after a hot 2021

A few weeks ago, we covered the top performing ASX stocks of 2021.

There, we mentioned that four of the five best performing All Ords stocks of last year were lithium stocks.

Zooming out further, and eight of the top 10 were lithium stocks.

How to Limit Your Risks While Trading Volatile Stocks. Learn more.

The big question is whether the lithium theme has the legs to continue running in 2022 — even as the world worries about inflation, interest rates, and Omicron.

Can lithium stocks maintain their momentum, or will investors seek fresher — or safer — pastures?

Today’s price action may have provided us a tentative clue, with many ASX lithium darlings falling.

Below is a snapshot of a selection of lithium stocks and their share prices at the time of writing:

Stock Today’s Loss
Liontown Resources Ltd [ASX:LTR] -6.5%
Lithium Australia NL [ASX:LIT] -6%
Lake Resources NL [ASX:LKE] -5.5%
Magnis Energy Technologies Ltd [ASX:MNS] -5%
Piedmont Lithium Inc [ASX:PLL] -4.5%
Novonix Ltd [ASX:NVX] -4.5%
Allkem Ltd [ASX:AKE] -4%
Vulcan Energy Resources Ltd [ASX:VUL] -4
Core Lithium Ltd [ASX:CXO] -4%

 

The S&P/ASX 200 Materials [ASX:XMJ] index fell today, too, down 1.5% in afternoon trade.

We can home in on the lithium sector in particular by considering the Solactive Global Lithium Index.

This index tracks the largest and most liquid stocks involved in the lithium industry — from exploring and mining the white metal to producing lithium-ion batteries.

Source: Solactive Global Lithium Index

Since hitting 387 in November 2021, the index has since fallen 15%.

But despite the recent slump for lithium stocks, the demand for the metal is set to continue.

Price of lithium defies forecasters

In the first two weeks of 2022, the price of lithium carbonate and hydroxide rose 25% and 12%, respectively.

The price hike led broker Credit Suisse to bump up its forecasts, saying the ‘unprecedented margins change everything’ for the lithium sector.

Analyst Saul Kavonic said lithium prices had ‘much further to run’ as supply remains tight as corporate interests align with national mandates to go electric.

The favourable market conditions for lithium were echoed by Allkem in its December quarterly.

As Allkem commented:

With EV sales anticipated to increase substantially in 2022, production volumes of lithium-ion batteries ramped up in China to a new record level of ~85GWH during the December quarter, up by 40% QoQ and more than double from the PCP.

Demand for lithium carbonate in China continued to grow during the quarter in response to a strong preference for LFP battery formats (lithium, iron, phosphate) in the domestic market which represented more than 50% of battery chemistries.

Spot prices for lithium carbonate and hydroxide across all key geographies rallied to new records as limited uncommitted supply fell short of demand during the quarter.

Spodumene concentrate spot prices also reached record highs during the quarter, almost doubling from the previous quarter.

So where do lithium stocks go from here?

How much of the market demand and supply tightness is already factored into the price of lithium stocks?

And how much are they influenced by the market’s handwringing over interest rates and inflation?

With Australia’s consumer price index data to be released tomorrow by the ABS, it won’t be long before we find out.

Now, if you want extra information on evaluating and comparing lithium miners, I suggest reading our comprehensive lithium guide.

It’s thorough and takes you through vital factors to consider when pondering the lithium sector and individual lithium stocks.

Regards,

Kiryll Prakapenka,
For Money Morning  

PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here

About Kiryll Prakapenka

Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…

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