When lithium prices finally bottomed in late 2020, depressed ASX lithium shares were quick to re-rate. This resulted in the shares doubling or even tripling in a matter of months.
Investors might be left with an all too familiar feeling sitting on the sidelines and watching shares run up.
With ASX lithium majors Galaxy Resources Limited (ASX: GXY), Orocobre Limited (ASX: ORE) and Pilbara Minerals Ltd (ASX: PLS) quickly running into multi-year highs, is it too late to consider ASX lithium shares?
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Higher spot prices to drive valuation
It might be worth looking at ASX iron ore shares that have experienced a similar narrative of surging demand and sky-high share prices.
China's significant infrastructure-focused stimulus combined with supply-side challenges sent iron ore prices soaring. Up from the US$90/tonne level in early 2020 to more than US$170/tonne today.
During this period, Fortescue Metals Group Ltd (ASX: FMG) more than doubled in value. While heavyweights BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) soaring to decade highs.
There are concerns that iron ore prices could cool down in the short-to-medium term. However, for the time being, ASX iron ore miners are enjoying record profits while paying out market-leading dividends.
What about ASX lithium shares?
While the top might be in for iron ore prices, the same can't be said about lithium.
In Galaxy and Orocobre's merger presentation, it points to robust demand for lithium in the mid-long term. It highlights that Chinese spot lithium carbonate prices have increased 90% between December 2020 and the end of March 2021. With lithium chemical inventories decreasing faster than expected.
Fastmarkets provides regular updates for the lithium industry. In its most recent update, it cited that "battery-grade lithium hydroxide price in China jumped by 3.75%, while the equivalent grade lithium carbonate price held despite slower trades". While prices across Europe and the United States "continued to post sharp gains on the global bullish trend and tight supply".
Brokers have also joined the mix with positive updates for Galaxy and Orocobre after its $4 billion merger update.
Foolish takeaway
Any asset class that runs up quickly in a short span of time can be subject to profit-taking and increased volatility. But both ASX lithium shares and brokers are positive on the medium to long term outlook of spot prices underpinned by a global commitment to electric vehicles and net-zero emissions.
