Lithium prices remain buoyant. Here are Macquarie's preferred picks.

The lithium market's meteoric rise came to an abrupt halt last November amid a sharp pullback in lithium prices in China.

Take heavyweight Pilbara Minerals (ASX: PLS) for example, which has seen its share price plummet almost -35% between 9 November and 29 December 2022. As the rate of decline for lithium prices plateaued, the stocks started to bounce, with Pilbara Minerals shares up around 30% from December lows.

In this article, we take a look at Macquarie's recent updates on the lithium pricing environment, their key picks as well as recent developments among ASX-listed players.

Lithium prices moderate but still elevated

Macquarie says lithium prices remain "elevated in January despite a slowdown in upgrade momentum".

"We note that spot spodumene prices remained largely flat in January while LCE and LiOH prices declined by 8-10%," the analysts said in a note last Friday.

Lithium carbonate prices in China has fallen more than 20% from all-time highs of 600,000 yuan last November. Prices are now at their lowest level since June 2022 amid a strong domestic supply response and expectations of weakening EV demand.

The price of Chinese lithium carbonate (Source: TradingEconomics)

Macquarie's preferred lithium picks

Macquarie remains bullish as ever on the lithium and rare earth space. The investment bank has 13 stocks under its coverage and only one stock isn't Outperform rated.

In the larger cap space, Macquarie said Mineral Resources (ASX: MIN) and Pilbara Minerals (ASX: PLS) are its preferred producers.

From a value perspective, the analysts see value in both Allkem (ASX: AKE) and Liontown Resources (ASX: LTR).

Allkem offers a "unique exposure to both lithium brine in South America and spodumene production in Australia." While Liontown's "Kathleen Valley construction will de-risk the project and provide valuation support [for the stock]."

Towards the small cap and explorer end of town, Macquarie noted Patriot Battery Metals (ASX: PMT) and Global Lithium (ASX: GL1) as its key picks.

Macquarie is Outperform rated on all the above stocks. Prices as at 2 February 2023 (Source: Macquarie Research)

Recent company announcements

Note: Share price performance reflects how the stock performed on the day of the announcement.

Patriot Battery Metals (+15.9%): Recent drilling results at Corvette, Quebec both broadened the strike extent and extended the high-grade mineralisation zone.

IGO (-7.1%): IGO reported its second quarter and first half FY23 results whereby weaker nickel production was offset by higher lithium volumes. The company raised its operating and capital cost guidance for nickel and flagged that its Kwinana final investment decision will be delayed by six months.

Liontown (-8.3%): Kathleen Valley pre-production cost estimates were lifted by 64% to $895m.