Why is the Allkem share price diving 8% today?

Allkem shares are heading lower today amid a pullback in the price of lithium.

Upset man in hard hat puts hand over face after Armada Metals share price sinks

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

  • Allkem shares and those of its lithium peers are falling lower today
  • At the same time, the commodity price of lithium is pulling back from its 11 November high
  • Goldman Sachs expects a slowdown of electric vehicle sales and an oversupply of the lithium commodity to start next year

The Allkem Ltd (ASX: AKE) share price has fallen precariously into the red today.

Shares in the lithium explorer are currently sliding 8.61% lower to trade at $13.17 apiece, after touching an intraday high of $14.48 near the open.

Putting weight on Allkem's share price is the fact that materials is today's worst-performing sector. The S&P/ASX 200 Materials Index (ASX: XMJ) is down 1.09% at the time of writing.

Adding to this is that a good number of Allkem's ASX lithium share peers are also showing red this afternoon. Here's a snapshot of how they're doing as the market close draws near:

  • Mineral Resources Limited (ASX: MIN) down 6.63%
  • Core Lithium Ltd (ASX: CXO) down 5.65%
  • Pilbara Minerals Ltd (ASX: PLS) down 7.1%

The broader market is also having a not-so-stellar session as the S&P/ASX 200 Index (ASX: XJO) is laying almost flat with a 0.19% gain for the day.

So why are lithium shares like Allkem performing poorly on Friday? Let's investigate.

What's going on with the Allkem share price?

Adding to the selling pressure on lithium shares like Allkem today is news that the lithium price may have hit a price ceiling, according to data from Trading Economics.

Prices for the commodity are creeping away from the recent high of CNY 600,000 per tonne on 11 November. It has since fallen 1.58% to CNY 590,500, effectively ending that lithium price rally.

The lithium commodity price has been on an enormous bull run year-to-date, gaining 113% during this period.

Supporting the price rise were subsidies for electric vehicles issued by the Chinese government, which were set to expire at the end of 2022. However, China Briefing reported in September that the government had exempted buyers of electric vehicles from paying vehicle purchase tax starting 1 January next year, lasting until 31 December.

Lithium commodity price could fall lower

These subsidies haven't stopped analysts at Goldman Sachs from giving the lithium commodity price a bearish outlook starting in 2023, however.

My Fool colleagues in the US noted last week that the bank believes the sale of electric vehicles is set to slow down next year, which could lead to an oversupply of lithium and thus put downward pressure on the commodity's price.

It was also noted that a cathode manufacturer in China was rumoured to have cut its production targets in anticipation of a slowdown in demand for its output.

So it appears the lithium commodity price is being hit from a couple of different angles, thus putting pressure on the share prices of lithium producers such as Allkem.

Allkem share price snapshot

The Allkem share price is up 26.8% year to date. That's beating the ASX 200 by a substantial margin, as the index is down 2.53% over the same period.

The company's market capitalisation is around $9.18 billion.

Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. 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

A man looking at his laptop and thinking.
Materials Shares

Are Pilbara Minerals shares a buy, sell, or hold for 2025?

Let's see if analysts think this lithium giant should be in your portfolio now.

Read more »

Image from either construction, mining or the oil industry of a friendly worker.
Materials Shares

4 popular ASX lithium shares going gangbusters on Tuesday

Pilbara Minerals and three other lithium stocks are having a particularly strong session.

Read more »

Miner looking at a tablet.
Resources Shares

South32 shares sink amid $33 million copper investment

Copper continues to be in hot demand.

Read more »

Three miners looking at a tablet.
Materials Shares

Should you buy BHP shares amid 2024's weakness?

Is now the time to pounce on the mining giant's shares? Here's what analysts are saying.

Read more »

Lion holding and screaming into a yellow loudspeaker on a blue background, symbolising an announcement from Liontown.
Materials Shares

Here's why the Liontown share price could rise almost 70%!

Bell Potter thinks this lithium miner could be a high risk/high reward option for investors.

Read more »

Man with rocket wings which have flames coming out of them.
Materials Shares

Why is the Novonix share price rocketing 16% on Monday?

Big news is giving this stock a huge lift on Monday morning.

Read more »

A man wearing a shirt, tie and hard hat sits in an office and marks dates in his diary.
Materials Shares

Liontown shares fall on major guidance and cost update

Big changes are being made at this lithium miner due to weak prices.

Read more »

Miner standing in front of trucks and smiling, symbolising a rising share price.
Materials Shares

Core Lithium share price storming higher on 'excellent' exploration results

ASX investors are sending Core Lithium shares flying higher today.

Read more »