The lithium producer’s market value has increased 2.5 times over the past 12 months.
Lithium producer Pilbara Minerals (ASX: PLS) was one of the success stories of 2021, as the share’s value rose more than 2.5 times in the past year. The company’s shares have hit record highs in recent weeks and, early in Friday trading, hit a new 52-week high of $ 3.30.
Why did the PLS share price take off?
The latest increase comes just weeks after the Western Australia-based lithium miner told the market it would cut shipments due to delays in commissioning, unplanned shutdowns and shortages of skilled workers.
But that should still benefit the company, as it further exacerbates the tight supply of the key raw material used in electric vehicle batteries. Investors are betting that 2022 will be another good year for lithium.
According to recent estimates from S&P Global Market Intelligence, in 2022, lithium demand is expected to be around 641,000 t lithium carbonate equivalent (LCE), while supply is expected to be 636,000 t, leaving a market loss of around 5,000 t.
As miners strive to increase capacity, they have not been able to keep up with demand, as in the case of the PLS itself, so a tight market is likely to persist short. term.
The deficit is expected to persist even over the longer term. Fitch Solutions forecasts increasingly significant deficits by 2030 which could “profoundly” modify the dynamics of the market.
Rise in demand, prices
A rapid increase in demand for electric vehicles, cheap operating costs, and government subsidies have helped keep demand for lithium strong. UBS analysts predict that annual demand for lithium-ion batteries linked to the electric vehicle sector will reach 2,700 GWh by 2030, roughly 13 times current production.
This underlines Pilbara Minerals’ status as a key supplier to the global lithium market. In fiscal 21, the company’s shipments more than doubled to 281,440 dry metric tonnes. For the current year, despite lower forecasts, Pilbara still expects shipments to be between 380,000 and 440,000 tonnes.
In light of the tight supply, it raised the average price forecast during the December quarter to the upper end of its benchmark range of $ 1,650 to $ 1,800 per tonne. Pilbara has already hit a peak spot price of $ 2,350 per tonne on an online auction platform in October.
Consistent with this sentiment, analysts at the Macquarie Group assigned a “Buy” rating to the Pilbara Minerals share price, with a target price of $ 3.70.
Meanwhile, analysts are also betting on a wave of M&A activity in the industry in 2022 as the world’s major miners increasingly compete with Chinese companies to expand their exposure to the battery metal. This should help increase ratings for players like PLS.
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