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Key points
- ASX lithium shares have benefited from soaring prices for the battery metal
- Labour shortages are hampering production increases
- EV sales expected to drive continued demand growth
ASX lithium shares are in the spotlight as industry leaders warn of continuing supply squeezes for the key battery metal.
Western Australia, home to some of the world's richest lithium deposits, has opted to keep its borders closed. That's creating serious labour shortages for the mining industry, which is dependent on interstate workers.
And some lithium producers have been hesitant to ramp up demand, still stinging from the lithium price crash following the onset of the global pandemic in mid-2020.
Falling prices at that time threw up headwinds for leading ASX lithium shares like Pilbara Minerals Ltd (ASX: PLS) and Mineral Resources Ltd (ASX: MIN).
Today it's a very different picture.
With electric vehicle (EV) production taking off, lithium demand looks to be outpacing supply. It's a situation many in the industry believe will continue through the year.
Lithium prices could gain another 50% in Q1
Lithium prices have surged over the past 18 months, ushering in some outsized gains among many ASX lithium shares.
The Pilbara share price, for example, is up an eye-popping 921% since August 2020. The Mineral Resources share price has also gained a respectable 120% over that same period.
And there could be more to come.
As the Australian Financial Review reports, Pilbara Minerals' CEO Ken Brinsden believes the price for lithium-rich spodumene concentrate, already up 4-fold in 18 months, could rise another 50% over the next 2 months.
Part of the supply crunch is due to hesitancy among some ASX lithium shares to up their production, with the 2020 price crash still all too fresh in management's minds.
According to Brinsden:
It is tough to bring on additional capacity in an environment where you were previously being punished. A very low pricing environment had meant that every producer had slowed down.
It is highly likely that on the supply side there will be challenges and it is probably the case that the supply response is already being overstated, so it is against that challenging environment that the price is surging.
But even the miners actively looking to up their production are facing hurdles, namely due to border restrictions imposed by Western Australia to mitigate the impact of COVID-19.
Brinsden said that's making it difficult for Pilbara and other miners to source temporary labour to upscale their production.
According to Brinsden (quoted by the AFR):
When something breaks or when we have got to do a shutdown, you typically can't get the labour, at least not in the way we used to, to create the peak load that is required to get the jobs done quickly.
A shutdown that should have taken 36 hours takes 72 hours and a broken ball mill coupling takes 56 hours to fix when it should have taken 24 hours.
As for the outlook for the strong EV demand that's been pushing lithium prices and ASX lithium shares higher, Fastmarkets analyst Benedikt Sobotka sees that continuing in 2022.
Noting that global EV sales more than doubled in 2021, Sobotka said, "The pace of EV adoption shows few signs of losing momentum, being supported by the global transition to a greener future."
How have these ASX lithium shares performed this year?
Neither of the 2 ASX lithium shares named above has escaped the wider selloff impacting the S&P/ASX 200 Index (ASX: XJO).
While the ASX 200 is down 8% so far in 2022, both companies are still in the green year to date. The Mineral Resources share price is up 2% and Pilbara shares have risen by 2.8%.
