Highly-priced newswires would have you believe that the lithium market is kaput because the spot price in China has come off some 50% since November.

But Garimpeiro wouldn’t be abandoning the sector on the strength of the “50% lithium price crash’’ horror stories.

While the Chinese domestic spot price for lithium carbonate has come back big time, at about $US43,000/t (prices under contract are higher, and spot prices elsewhere in Asia are higher), it remains a fantastic price compared with production costs of $US5,000t-$US15,000t, depending on the process route.

So margins are still nice and fat, albeit not as nice and fat as they were last year.

Garimpeiro thanks the newswires for their hysteria campaign because it has knocked the stuffing out of the share prices of ASX lithium stocks. For no good reason either as no stock analyst ever plugged in $US80,000-plus prices to arrive at share valuations/target prices.

Analysts have responded to the lithium price weakness in the opening months of 2023 by trimming their earnings expectations/share price targets for the leading lithium stocks.

But because lithium’s current price is closer to where the analysts were at anyway, the impact on earnings expectations is not particularly significant, meaning share price targets remain pretty much where they were.

When viewed against the sector’s beaten up share prices, it means that value has returned in a big way.

All that came through in a 56-page lithium market update by Macquarie during the week.

The firm has an “outperform’’ rating on all of the 18 ASX lithium stocks under its coverage. While 10 of the stocks had their share price targets trimmed, all had price targets well ahead of their current beaten up share prices.

The implied upside from where they are trading now, to Macquarie’s price target, ranged from (only) 37% at Sayona (ASX:SYA), up to 233% at Leo (ASX:LLL).

Other names in the 100%-plus club under Macquarie’s reckoning included Pilbara (ASX:PLS/116%) and Piedmont (ASX:PLL/131%).

Needless to say that Macquarie said it remained “constructive on the lithium market outlook despite near-term headwinds from lower lithium prices and slow EV sales.’’

It also expects the lithium market to remain in deficit, with the deficit to reach 100,000t in 2025.

While Macquarie lowered its CY2023 regional lithium prices by 21-23%, and cut Chinese lithium prices by 24-28% to reflect weak spot prices, its long-term lithium and spodumene prices were increased by 10-25%.

Only one of the lithium stocks Garimpeiro has been keeping an eye on – Patriot Battery Metals (ASX:PMT) – made it on to Macquarie’s list. Macquarie’s target price on the stock was $1.80 compared with Patriot’s Wednesday close of $1.16.

The market is hanging out for Patriot’s maiden resource at its Corvette project in Canada. It is expected to be big, real big. Macquarie has Corvette pencilled in as a spodumene producer starting in CY2028, with production rising to a world-scale 676,000t in CY2030.

So much for the big end of town. What about the growing number of explorers on the ASX that have made lithium their focus in the last couple of years? Garimpeiro reckons it could remain a bit of slog for them as long as lithium prices drift lower.

Share price falls for the explorers sector have been savage, with those with a smallish resource in the bag, or one about to be, performing better than the grass roots lithium explorer.

It seems likely then that a switch back to gold exploration by many lithium hopefuls will be underway before long. Nothing wrong with that given the near record Aussie gold price.

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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