Pilbara Minerals lithium auction prices soften for the first time in five months

Even the strongest price trends need to take a breather. The price of lithium spodumene at the Pilbara Minerals (ASX: PLS) battery material auction fell -3.2% month-on-month, marking the first decline since July 2022.

On Wednesday, the company sold two spodumene cargos for a combined total of 10,000 dry metric tonnes (dmt) at an average price of US$7,552/dmt, down from a record US$7,805/dmt a month ago.

Still, prices have come a long way since the first auction held last July, where the top bid came in at just US$1,250/dmt.

Uncertainty takes hold

Auction results aside, Benchmark Minerals Intelligence noted a soft start in December as downstream Chinese manufacturers adopted a "watch-and-wait strategy towards purchasing material" amid Covid-related disruptions and ahead of an early Spring Festival in 2023.

The 'wait and see' attitude was further exacerbated by the end of China's EV subsidies. The Chinese government currently grants a number of subsidies to EV buyers, with all-electric and plug-in hybrids eligible for 12,600 yuan (US$1,836) and RMB 4,800 (US$690) per unit, respectively.

The subsidies will be pulled from 1 January 2023 onwards, with no plans of any additional support or tax exemptions. For now.

Citi's take

Citi said that Pilbara Minerals' auction pricing may have peaked but margins remain 'sky high'. To add some perspective, the company guided to unit operating costs of US$445 to US$490/dmt for FY23 (free on board, excluding royalties).

Despite peaking prices, the investment bank expects lithium prices to "continue to trade at elevated levels" and for Pilbara Minerals to pay a maiden dividend in 1H23.

On Wednesday, Citi analysts reaffirmed a Neutral rating for the stock, with a $4.60 target price.

Lithium stocks roll over

Pilbara Minerals shares fell -7.3% in early trade to a four month low. Though, most larger cap lithium names like Liontown Resources, Core Lithium and Allkem are down more than -2.50%, signalling a rather sector wide selloff.

Amid the market's recent weakness, Pilbara Minerals has tried to hold the $4.40 level, but with today's news, it's broken the key area of support.

Pilbara Minerals (Source: TradingView)