ASX lithium shares saw plenty of gains in 2022. But, could pain be on the horizon? The level of profitability is largely dependent on the lithium price.
Supply and demand can have a significant impact on the direction of a commodity price. And a new prediction has put a large question mark on the potential performance in 2023.
The Pilbara Minerals Ltd (ASX: PLS) share price is up more than 60% in the past six months but has plunged in the last few weeks. Since 9 November 2022, it has dropped around 30%.
Further pain predicted for ASX lithium shares
The lithium price is going to keep falling according to the chair of Sinomine Resource Group, Wang Pingwei, reports the Australian Financial Review and Bloomberg. The official predicted the lithium price will fall by approximately a quarter from current levels.
However, prices are not expected to "fall off a cliff" because the market remains "tight". This could help limit the damage for ASX lithium shares.
But, despite that, it was pointed out in the AFR that the benchmark prices in China are around double what they were at the start of 2022, even though they have been dropping recently.
How much could the lithium price fall? Wang Pingwei suggested it could drop to around 400,000 yuan, which is equivalent to $85,000. At the moment the price is around 528,000 yuan, according to data from Asian Metal – a drop of around 10% from the peak of close to 600,000 yuan.
Another prediction of a price decline comes from the executive vice president of electric car maker BYD, Stella Li, who suggested that more mine supply will put the market into surplus next year and help soften prices.
Adding to this uncertain outlook for ASX lithium shares is the withdrawal of Chinese electric vehicle credits, plus questions around COVID-19 and the global economy, as reported by the AFR.
Foolish takeaway
It will be interesting to see if this 25% drop eventuates. That would be quite a large decline.
However, Wang Pingwei suggested that ASX lithium shares would still be generating "good" profits at that lower level, so it wouldn't be a disaster. Another question would be whether the lithium price would continue to drop after that, or whether it would recover.
