Why did ASX lithium shares have a dream run on Monday?

Is China the cause of the lithium boom today?

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Key points
  • It’s been a very strong day for the ASX lithium sector
  • Names like Liontown, Mineral Resources and Core Lithium have rocketed
  • Promising news out of China could be the reason for the surge

The ASX lithium share sector has had a great start to the week today. Investors in the industry are getting a big boost with news out of China that could be very promising.

Firstly, let's look at the state of play for the battery resource miners at the close of trade on Monday.

The Core Lithium Ltd (ASX: CXO) share price ripped 11.68% higher, while shares in Mineral Resources Limited (ASX: MIN) and Allkem Ltd (ASX: AKE) were up a respective 3.11% and 0.49%.

The smaller end of town also recorded strong surges, with the Liontown Resources Ltd (ASX: LTR) share price up 6.8%, Lake Resources NL (ASX: LKE) up 4.91% and Sayona Mining Ltd (ASX: SYO) closing 6.12% higher.

The exception today was the Pilbara Minerals Ltd (ASX: PLS) share price, which was down 1.49% at the close after trading 4.3% higher earlier in the day.

asx share price increase represented by golden dollar sign rocketing out from white domes of lithium

Image source: Getty Images

What's going on with ASX lithium shares?

According to reporting by media, including Reuters, there are positive developments coming out of China.

The Asian superpower has reportedly eased some of its COVID-19 protocols – the country has been trying to keep the pandemic under control with lockdowns, which has been reducing economic growth.

Reuters reported that "the easing curbs included shortening quarantine times for close contacts of cases and inbound travellers by two days, as well as eliminating a penalty on airlines for bringing in infected passengers".

Not only that, but Chinese regulators have reportedly told financial institutions to extend more support to property developers to help the real estate sector. This was according to two sources with "direct knowledge" of the matter.

There are 16 steps to help the industry, which include loan repayment extensions. According to reporting by Reuters, sources said that "if a loan is due to mature within six months, real estate companies can be allowed to defer repayments for one more year."

The chief economist at Guotai Junan International, Hao Zhou, said:

The Chinese authorities provided a slew of supportive measures over the weekend to support the property sector, which is likely to improve the market sentiment towards the Chinese economy.

Weak property sales and investment suggest that a turnaround of (the) property outlook remains uncertain over the foreseeable future, which justifies the recent supportive measures from the Chinese authorities.

More economic activity in China could be a positive for ASX lithium shares because the Asian economic giant is a big consumer of lithium.

Australian and Indonesian lithium alliance

According to reporting by The Australian, Indonesia has started talking with Australia about a "plan to invest in a long-term lithium mining and processing partnership that could make the two countries the dominant global supplier of electric vehicle batteries".

Indonesia reportedly has the world's been  nickel reserves, a key ingredient for batteries. The country wants to ramp up the production of both electric vehicle batteries and cars.

This could further increase the demand for lithium in the future.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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