Image Source: Getty Images
LLC “Allchem” (ASX: AKE) The share price is precariously negative today.
Shares of the lithium explorer are currently down 8.61% to trade at $13.17 a share after hitting an intraday high of $14.48 at the open.
Allkem’s share price is affected by the fact that the materials sector is the least successful sector today. S&P/ASX 200 Material Index (ASX:XMJ) is down 1.09% at the time of writing.
On top of that, stocks of many Allkem ASX lithium analogs are also showing red this afternoon. Here’s a snapshot of how they’re doing as the market close approaches:
- Mineral Resources Limited (ASX: MIN) down 6.63%
- Kor Litium LLC (ASX: CXO) down 5.65%
- Pilbara Minerals Ltd. (ASX: PLS) down 7.1%
The broader market is also having a not-so-great session as S&P/ASX 200 Index (ASX: XJO) remained virtually unchanged, gaining 0.19% on the day.
So why are lithium stocks like Allkem trading poorly on Friday? Let’s explore.
What’s happening to Allkem’s share price?
Pressure from lithium stock sellers such as Allkem has been added today by news that the price of lithium may have hit a price ceiling, according to Trading Economics data.
Prices for this commodity are moving away from the recent high of 600,000 yuan per tonne on November 11th. It has since fallen 1.58% to 590,500 yuan, effectively ending the lithium price rally.
The price of lithium has shown huge growth since the beginning of the year, adding 113% over this period.
Prices have been supported by subsidies for electric vehicles issued by the Chinese government, which expire at the end of 2022. Briefing on China In September, it was reported that the government would exempt buyers of electric vehicles from paying tax on the purchase of vehicles from January 1 next year and will last until December 31.
The price of lithium may fall lower
However, these subsidies have not stopped Goldman Sachs analysts from giving a bearish forecast for lithium prices starting in 2023.
My colleagues at Fool in the US noted last week that the bank believes EV sales will slow next year, which could lead to an oversupply of lithium and thus put downward pressure on the commodity’s price.
It was also noted that a cathode manufacturer in China is rumored to have cut its production plans in anticipation of a slowdown in demand for its products.
Thus, the price of lithium is being hit from several directions, putting pressure on the share prices of lithium producers such as Allkem.
Snapshot of Allkem stock price
Allkem’s share price is up 26.8% year-to-date. This greatly outperforms the ASX 200 as the index is down 2.53% over the same period.
The market capitalization of the company is about $9.18 billion.