Why ASX lithium shares are falling (hard) but the All Ordinaries (XAO) index is resilient

The Australian share market and All Ordinaries (INDEXASX: XAO) ended slightly higher on Wednesday as ASX lithium shares took a tumble, with even the Pilbara Minerals Ltd (ASX: PLS) share price taking a bath following concerns over lithium prices could fall following research out of Goldman Sachs.

Here’s why lithium shares are falling

The All Ordinaries (XAO) gained 0.3 per cent on the first trading day of June. Another rally in the iron ore price, which supported the likes of Fortescue Metals Group Ltd (ASX: FMG) and BHP Group Ltd (ASX: BHP), the latter up 2.3 per cent, wasn’t enough to dig the materials sector out of the hole, as it finished down 0.3 per cent.

The biggest driver was ‘carnage’ in the lithium sector that saw Pilbara Minerals Ltd (ASX: PLS) finish 22 per cent lower, Liontown Resources Ltd (ASX: LTR) down 19 and Allkem (ASX: AKE) down 15 per cent.

The massive selloff in lithium shares like Pilbara and Liontown came after Goldman Sachs suggested lithium prices were set for a sharp correction and the Argentinian Government set an export price below current market prices for lithium due to concerns over ‘irregularities’ in shipments.

This correction in lithium prices offers another insight into the challenge of investing into emerging and current trends and the risk that short-term events (e.g. lithium price caps) get extrapolated out into the future.

Aside from lithium shares, there was positive news for the domestic economy, which saw growth of 0.8 per cent in the March quarter and 3.3 per cent for the year, not really reflecting the ‘hot’ environment that has central banks so concerned.

Bond yields rise, Nasdaq flops

All three major US stock market benchmarks lost ground on Wednesday, led by the Nasdaq which fell 0.7 per cent as bond yields jumped on commentary that the Fed may increase rates by another 0.50 per cent in September. The S&P500 and Dow Jones fell 0.8 and 0.5 per cent, respectively, as the local manufacturing index showed a strong reading of 56.1.

In a surprise move, Facebook (NASDAQ: FB) Chief Operating Officer Sheryl Sandberg announced she would be leaving after 14 years at the helm and multiple controversies. Facebook/Meta Platforms shares fell close to 2 per cent on the news. Salesforce.com (NYSE: CRM), the world’s leading customer relationship management software provider, released its first-quarter report for its financial year 2023, beating analyst estimates on most metrics.

The now standalone Victoria’s Secret (NYSE: VSCO) jumped nearly 9 per cent after reporting a strong profit and seeing quarterly sales hit US$1.5 billion. Amazon (NYSE: AMZN) also capped a strong seven-day streak with another 1 per cent gain as the big tech companies recover. Job openings fell to 11.4 million as signs of the slowing market increased.

Origin Energy (ORG) share price down on guidance

Origin Energy Ltd (ASX: ORG) reversed a recent strong run, falling 13.7 per cent after flagging increasing costs in their production assets. Origin Energy has highlighted the growing risk of an energy crisis like that which is occurring in the UK and sending wholesale energy prices to record levels.

The issue, of course, is increasing costs of energy production and caps on pricing. Origin announced earnings from their APLNG production facility remain strong and will offset a decline in energy market earnings due to the ‘extreme volatility’ but reduced guidance to $310 to $460 million, a much larger range.

Origin also highlighted the challenge on the electricity system of coal power outages and the pressure this is placing on gas facilities. Wheat prices have also fallen on hopes that the Russian crop will not be overly impacted and that Ukraine will be allowed to export in 2022, which sent shares in Graincorp Ltd (ASX: GNC) 1.6 per cent lower.

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