The ASX lithium share IGO Ltd (ASX: IGO) has suffered significantly in the last few months. The IGO share price is down 21% in the past month and it has fallen 28% from 14 July 2023.
That's pretty rough considering the S&P/ASX 200 Index (ASX: XJO) has only dropped by 4.6% over the past month and 5.2% from 14 July 2023.
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Why has the ASX lithium share fallen so hard?
The short-term success of ASX mining shares is heavily linked to the price of the commodity that they are focused on.
Mining costs don't usually change much month to month, though companies obviously try to lower expenditure where they can. If the commodity price rises, a lot of that extra revenue also means extra profit, aside from paying more to the government.
It's a similar effect but in reverse when the commodity price falls – the reduction in revenue also means a large decline in profitability. This is what's happening for ASX lithium shares.
The news outlet Bloomberg recently reported that lithium prices have sunk to the lowest levels in two years. Why is the lithium price suffering? Bloomberg said it was because of concerns about the strength of Chinese demand for lithium.
It was reported that the lithium carbonate price had fallen to US$22,814 per ton recently, which equates to a fall of close to 50% since June.
Bloomberg also said that Goldman Sachs believes the lithium price could decline even further if electric vehicle sales aren't as high as expected.
Is this an opportunity to buy IGO shares?
I think it's worthwhile pointing out that IGO isn't entirely a lithium miner, so we shouldn't think its success is completely linked to lithium.
IGO owns and operates the Nova nickel-copper-cobalt operation, the Forrestania nickel operation and the Cosmos nickel operation – all of these are in Western Australia.
Its goal is to discover, develop and deliver products that are critical for clean energy. It is committed to "investing in exploration to ensure the world has a sustainable supply of clean energy metals."
I'll point out that it's possible in the future, the ASX lithium share could diversify its resource base even further, though that's not guaranteed to happen.
According to the analyst recommendations collated by Factset, the majority of opinions seem to be positive – there are eight buy ratings, three hold ratings and four sell ratings.
I like the focus of the business on green energy – there is expected to be a lot more demand in the coming years as the world decarbonises.
Resource prices, and the IGO share price, sometimes have significant positive and negative movements. The large downswings can end up being opportunities if we're brave and invest when the market is fearful.
I rate this business as a higher-risk long-term buy on the energy transition, though Pilbara Minerals Ltd (ASX: PLS) may be more attractive to investors looking for a pure ASX lithium share play. It'd be wise to assume that volatility will continue to be a feature of the resource sector.
