Investor Spotlight: Lithium stocks and another historic rally

The electric vehicle and renewable energy thematic remains strong, despite volatility and bearishness in equity markets in 2022. In this week’s Investor Spotlight, we provide an update on what’s been driving the price of lithium and lithium stocks and take a look at the charts of three ASX-listed lithium companies.

What’s been driving lithium and lithium stocks?

The price of lithium continues to surge in the second half of 2022. Tight supply right across the electric vehicle supply chain is pushing prices higher, especially as Chinese demand remains strong, and investors anticipate the impact of legislation in the United States designed to accelerate the push to renewable energy.

Prices have pulled back from record highs in recent weeks, largely due to watered-down expectations for Chinese demand in the short term. Futures markets in China have pulled back, fanning rumours of production downgrades by a major cathode maker, and that has bled through to global markets and impacted lithium miners.

Lithium stocks have also come off their highs due to another bearish research note from Goldman Sachs a fortnight ago. The broker stuck to its view that supply will begin to outpace demand in 2023, after first publishing such guidance in June, which also resulted in a significant sell-off in lithium stocks.

Three lithium stocks to watch

• Pilbara Minerals

Pilbara Minerals remains the blue-chip player in the Australian lithium industry. It’s a pure-play lithium miner with a market capitalisation of approximately $13.5 billion, and one of the few lithium miners operating at a profit.

Pilbara has delivered a 79.80% capital return to investors over the past year, underpinned by surging lithium prices and strong financial performance. The company posted an NPAT of $561.8 million for the last financial year, off the back of a $577% increase in sales revenue.

In recent days, Pilbara’s share price received a boost on news that it has entered a joint venture agreement with Calix for the development of a demonstration plant. According to the company, the project “is to deliver a superior value-added lithium product enabling lower product cost, reduced carbon energy intensity, and reduction of waste product logistics”.

While the long-term story is constructive for Pilbara Minerals, its technicals are pointing to a potential pullback in the short to medium term. Its uptrend has broken down, with momentum turning to the downside. Price has tested support at $4.34; if that breaks, it may open a test of the 20-week moving average or support at $3.90.

Pilbara Minerals

• Allkem

Allkem remains a trader favourite and high beta play on the lithium sector. With the run-up in lithium prices, Allkem is approaching large-cap status, with its stock rising nearly 40% in the past year.

In the company’s recent activities report, Allkem said lithium carbonate sales were 3,721 tonnes, which resulted in record quarterly revenue of approximately $US150 million.

Allkem’s technicals remain constructive, with the share’s uptrend still structurally intact. However, momentum is shifting to the downside, as the price pushes through the 20-week moving average, and the RSI turns lower. Key support appears to be at a confluence of levels around $12. Resistance could be found at around $14.20.

Allkem weekly chart

• Core Lithium

Core Lithium has been one of the lithium sector’s strongest performers. Its shares have climbed 145% over the past year, as investors search for high-beta and riskier growth plays amongst explorers.

Core Lithium’s shares tumbled 25% recently, however, following some shuffling at the executive level, and a cut to the company’s price target by Macquarie by 5%, due to production delays.

Like some of its peers, Core Lithium shares remain in a structural uptrend but are showing signs of slowing upside momentum. The RSI is turning sideways, while the price is below its 20-week moving average. The next key level to watch appears to be around the 50-week moving average at $1.15.

Core Lithium weekly chart