Eye on Lithium: ‘The electrification transition is currently on sale’ as short-term lithium sentiment dwindles

• Short term lithium sentiment takes a hit due to recession, inflation, and China’s failed COVID-19 strategy
• Lithium stocks hit hard, but industry veteran Joe Lowry says long term trend intact: “the electrification transition is currently on sale”
• Critical Resources completes due diligence process for the binding purchase and sale agreement over the Gullwing-Tot Lakes property in Ontario, Canada

All your lithium news, Thursday December 29.

Weak investor sentiment has continued to impact lithium stocks over the past few months thanks to recession, inflation, China’s failed COVID-19 strategy and, most recently, a softening of lithium prices from their record highs.

Recession, inflation & the impacts of China’s botched Covid strategy will all, to some extent, impact #EV sales & #lithium short term; however the long term trend for EVs & lithium remains. DYOR – the electrification transition is currently on sale. https://t.co/9K74kGJFU2

— Joe Lowry (@globallithium) December 28, 2022

The market caps of major lithium players such as Pilbara Minerals (ASX:PLS), Liontown Resources (ASX:LTR), Lake Resources (ASX:LKE), Sayona Mining (ASX:SYA), and Allkem (ASX:AKE) are all feeling the punch – down 19%, 35%, 21.5%, 14.3% and 16.55% in the past month as consumers choose to destock rather than purchase new inventory given the downward price trend.

Pricing downside could be limited

Benchmark Mineral Intelligence (BMI) says tier 1 lithium producers continue to report strong orders from customers, whilst tier 2 and 3 players have felt the impact of destocking, offering lower prices into the market in an attempt to win sales.

“Competition has been compounded by traders also looking to sell into the market to take profit, fearing a more significant correction,” the price reporting agency says.

“With chemical and feedstock markets remaining relatively tight, this may pose a challenge should there be a broader market shift back to buying activity.”

Benchmark also notes that spodumene contracts have shifted towards more aggressive price structures in Q4 2022, in expectation that feedstock costs will continue to rise.

This will push contract prices higher, BMI says, suggesting that there will be limited space for chemical prices to fall should this trend play out.

NOW READ: Lithium has past a peak, but the Canadian plays could still rule the ASX in ‘23

Long term outlook hasn’t changed

Long-term bullishness in the sector remains as countries around the world accelerate their transition to a cleaner, greener economy.

Luke Laretive, CEO of Seneca Financial Solutions, says this bullishness has essentially doubled over the course of the year.

And while the money has been with the producers and near-term developers this year, Seneca believes the real opportunity in 2023 will come from identifying the businesses that will progress through the most meaningful, value-accretive milestones next year.

In Laretive’s view, this progress is most likely among the discounted, longer-timeframe developers who aren’t forecast to be in production until 2025 or 2026.

These stocks might re-rate as investors gain greater confidence on the company’s ability to make it into production.

Here’s how ASX lithium stocks are tracking:

43 lithium companies finished in the green while another 33 tumbled.

Who’s got news out?

CRITICAL RESOURCES (ASX:CRR)

Critical Resources has completed the due diligence process for the binding purchase and sale agreement with TSX-V listed Power Metals Corp over the Gullwing Tot Lakes property in Ontario, Canada.

The Gullwing-Tot Lakes property covers some 7,518 hectares, roughly 5.5km northeast of the Mavis Lake ‘Main Zone’ where the company has been successfully drilling since April 2022.

CRR says it is highly prospective for lithium mineralisation, with historical exploration identifying multiple spodumene-bearing pegmatites over the project area, with rock-chip samples returning grades up to 6.78% Li2O.

The Gullwing-Tot property will form an enlarged contiguous project area of 30km long and 9.5 km wide, with a total area of 22,984 hectares.

Exploration efforts will begin in the Canadian summer, focused principally on mapping and geochemical field work to develop and refine future drilling targets.

Initial efforts will centre on the Gullwing and Tot Lakes pegmatites.