Why are the Core Lithium (CXO) and Pilbara Minerals (PLS) share prices rebounding?

Posted: 8 April 2022 3:44 pm
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Shares in the 2 lithium explorers have more than trebled over the last 12 months.

Battery minerals suppliers Pilbara Minerals (ASX: PLS) and Core Lithium (ASX: CXO) are among the most traded shares on the ASX boards on Friday. After several days of decline, the 2 stocks are 1.5% and 3% higher respectively, at the time of writing.

What is boosting the PLS and CXO stock prices?

ASX-listed lithium stocks have been gathering momentum in recent weeks on growing expectations of a continued rise in prices, amid a looming supply deficit for the battery-making material.

Experts have been warning that supply is not keeping up with demand at a time of rapidly increasing manufacture of electric vehicles. That means despite prices of spodumene concentrate, the substance that is used to produce the lithium chemical used in electric vehicle batteries, having surged more than 10-fold in a little over 18 months, prices will keep rising further.

Accordingly, UBS this week upgraded its lithium price forecasts lifting the spodumene price forecast by about 17% to US$4,485 a tonne.

"We revise our near-term lithium prices reflecting continued tightness in the market and with no signs yet of easing," the broker said in a note. UBS believes the lithium market, like iron ore, will evolve with the industry gravitating towards spot pricing.

"We draw analogies to the breakdown of the annual iron ore contract where market dynamics evolved to a point where the price difference between spot and contracted pricing made long-term fixed-price agreements untenable," it said.

Global suppliers

The market dynamics are expected to benefit suppliers like Core and Pilbara Minerals, who have gradually evolved into key suppliers to the global battery minerals supply chain.

It has already resulted in a slew of lithium suppliers, including Core, as well as rivals like AVZ Minerals (ASX: AVZ) and Liontown Resources (ASX: LTR) hitting record highs earlier this week. After a bout of profit taking, the stocks are climbing again.

Last month, Core signed a landmark deal with electric vehicle giant Tesla Inc. (NASDAQ: TSLA) for the supply of up to 110,000 dry metric tonnes of spodumene concentrate over a 4-year period.

The deal marked the culmination of Core Lithium's transformation from another junior explorer to reliable supply partner for global firms.

Pilbara itself has underlined its status as a key supplier to the lithium market, more than doubling its shipments in FY21 to 281,440 dry metric tonnes.

It has already lifted the mineral resource at its 100%-owned Pilgangoora project in Western Australia, which is the world's largest, independent hard-rock lithium operation, producing a spodumene and tantalite concentrate.

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