Is this the real reason ASX lithium shares cratered on Wednesday?

Lithium shares were sold off on Wednesday. Is this why?

| More on:
Dollar sign in yellow with a red falling arrow in front of a graph, symbolising a falling share price.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Lithium shares had a day to forget on Wednesday
  • The industry was a sea of red with many major players recording double-digit declines
  • Was Goldman Sachs to blame? Probably not...

Yesterday was one of the worst days on record for Australian lithium shares.

The likes of Allkem Ltd (ASX: AKE) and Pilbara Minerals Ltd (ASX: PLS) made double-digit declines, with the latter falling more than 20%.

Why were lithium shares sold off?

While there were a number of catalysts for these declines, news that Goldman Sachs was bearish on lithium prices was suggested to be the main reason for the weakness.

However, this didn't make a lot of sense. As I've mentioned before, Goldman's belief that lithium prices have peaked and will fall materially in the coming years is not new.

At the start of last month, I outlined Goldman's forecasts for lithium prices through to 2025. These forecasts can be found here.

In addition, the most recent note from Goldman Sachs in relation to battery materials was actually released on Monday. Which means the selloff should really have occurred on Monday or Tuesday, not on Wednesday.

So what was the real cause?

The real reason for the weakness in ASX lithium shares such as Liontown Resources Limited (ASX: LTR) and Sayona Mining Ltd (ASX: SYA) appears to be news out of China.

According to Chinese media organisations, Warren Buffett-backed electric vehicle company BYD is planning to buy six lithium mines in Africa.

In total, BYD is understood to be expecting these mines to produce approximately 1 million tonnes of lithium carbonate each year. That would be enough to build at least 27.78 million electric vehicles, which covers the automaker's expected demand for the next decade.

So, as well as increasing supply, it would also take a major buyer of lithium out of the chain. This could have a big impact on the demand side and therefore lithium prices in the coming years. It may also make Goldman's bearish view more accurate than some investors would like to believe.

Motley Fool contributor James Mickleboro has positions in Allkem Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Materials Shares

smiling worker stands before power generator technology
Materials Shares

Fortescue shares jump 5% on record performance

This mining giant was in fine form during the quarter.

Read more »

A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.
Materials Shares

Should you buy Pilbara Minerals shares today?

Let's see if analysts think investors should be buying the lithium giant's shares.

Read more »

Image of young successful engineer, with blueprints, notepad and digital tablet, observing the project implementation on construction site and in mine.
Materials Shares

Expert says this ASX mining stock could rise almost 30%

Let's see which miner is being tipped as a buy for investors right now.

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Materials Shares

BHP shares charge higher on record copper and iron ore production

Let's see how the miner performed during the fourth quarter.

Read more »

A man stands with hands on hips surveying construction of three high-rise buildings.
Materials Shares

Building activity on the rise – will ASX materials shares benefit?

New data from the March quarter shows a sharp rise in building activity. 

Read more »

Man smiling at a laptop because of a rising share price.
Materials Shares

Macquarie predicts 11% upside for this ASX materials stock

Here's why the broker is positive on the stock.

Read more »

Miner and company person analysing results of a mining company.
Materials Shares

Rio Tinto share price falls on Q2 update

Let's see what the mining giant reported for the second quarter.

Read more »

a man in a hard hat and high visibility vest smiles as he stands in the foreground of heavy mining equipment on a mine site.
Materials Shares

Could these 3 ASX materials shares be set to double?

This broker has buy ratings and aggressive price targets for these holdings. 

Read more »