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The shares of the ASX lithium players have got off to an excellent start in the trading year 2022. Today the sector clearly outperforms the broad indices.
For example units in the ETFs battery technology & lithium ETF (ASX: ACDC) – a proxy for matching returns for battery and lithium players – is trading more than 3% higher at $ 96.50 that day.
The benchmark is now S & P / ASX 200 index (ASX: XJO) has only increased by 1.5% today and was at 7,561.6 points at the time of going to press.
Why Are ASX Lithium Stocks So Strong Today?
The review of ASX trading data reveals significant trading depth in lithium frontrunners like Pilbara Minerals Ltd (ASX: PLS) and Allkem Limited (ASX: AKE) increased by more than 7% and 6% respectively.
Several other ASX lithium stocks like Liontown Resources Limited (ASX: LTR) and Core Lithium Ltd (ASX: CXO) also posted strong gains during the session, helped by positive sentiment across the broader sector.
While none of these companies released any price sensitive information today, the price of lithium is the main factor underpinning price strength in this sector.
Demand and supply mechanics for the battery metal ensure that lithium prices will remain in a cyclical upturn in 2022.
Lithium still generates electricity
Lithium has gone parabolic since January last year and the market has kept upward pressure constant for the past 12 months.
On the demand side, lithium batteries were introduced sequentially in parallel with the transition to electromobility.
For example, according to an analysis by Trading Economics, global sales of electric vehicles rose 160% in 2021. Meanwhile, electric vehicle deliveries in China are expected to double to more than 5 million sales in 2022.
That cause-and-effect has driven lithium prices higher in the past 12 months, according to an analysis by Goldman Sachs, Roskill, International Energy Agency, FactSet, Statista, CRU Group and Bloomberg Intelligence.
During this time, the price of battery metal has increased by more than 104%. It now trades at 277,500 Chinese yuan per ton, another record high.
Why does it matter?
What is relevant for the lithium share of ASX today is that the prices on the spot and futures markets for lithium rose again by 38% in December.
Even in the past week, prices rose another 3.4% at the time of going to press. Producers and explorers with direct involvement will see volatility in the lithium markets fluctuate due to their positioning as price takers for battery metal.
Companies in adjacent markets that are involved in lithium-ion batteries are also benefiting from rising raw material prices.
So the momentum has spilled over into the New Year, which bodes well for ASX lithium stocks.