The lithium industry has been under pressure in recent weeks amid concerns over the supply-demand balance.
In recent times, demand has been outstripping supply, supporting sky high prices for the white metal.
However, a growing number of analysts now believe that supply will soon catchup and potentially even lead to a lithium surplus in the next couple of years. This would put significant pressure on lithium prices.
Whether or not this materialises is difficult to say. Lithium supply has a habit of disappointing. But, nevertheless, it is perhaps best to consider investing on the assumption that prices will start to fade.
But which lithium shares would be good options in this scenario? Two that have been rated as buys this morning are listed below. Here's what analysts are saying about them:
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Allkem Ltd (ASX: AKE)
According to a note out of Morgans, its analysts have retained their add rating but trimmed their price target on this lithium miner's shares to $16.38.
The broker notes that Allkem has just reported higher than expected lithium carbonate prices for the June quarter. And while this has been offset somewhat by softer production at Mt Cattlin, it remains bullish.
Morgans recently commented: "We don't think spot prices are likely to remain at current levels forever but we think there is still plenty of scope for contract prices to increase further before settling down into a long term average."
Liontown Resources Limited (ASX: LTR)
Analysts at Macquarie remains bullish on this lithium developer. It notes that the company has just signed a binding offtake agreement with electric vehicle giant Tesla. This complements its existing agreement with LG Energy Solution.
And with management in talks with other parties regarding a third and final offtake agreement, Macquarie feels this could be a boost to the Liontown share price if/when announced.
And with Macquarie putting an outperform rating and $2.50 price target on the company's shares, there certainly is a lot of room for them to climb.
