Pilbara Minerals Ltd (ASX: PLS), a leading Australian lithium producer, saw its shares plummet 5.45% in intraday trading on Wednesday. The significant drop comes as the lithium sector faces ongoing challenges, including depressed commodity prices and new concerns about potential U.S. tariffs.

The sharp decline in Pilbara's stock price can be attributed to several factors. Firstly, the lithium market has experienced a severe downturn, with spodumene prices falling from over US$6,000 per tonne in late 2022 to around US$1,000 per tonne currently. This 80% drop has significantly impacted lithium producers' profitability, including Pilbara Minerals. The company's latest half-year results reflected this challenging environment, with Pilbara swinging from a profit of $220 million in H1 FY24 to a loss of $69 million in H1 FY25.

Adding to the pressure, Citi analysts have cut their price target for Pilbara Minerals from A$2.40 to A$1.65, citing concerns about potential U.S. reciprocal tariffs on lithium imports. These tariffs could act as a headwind for demand, potentially further depressing lithium prices in the near-to-medium term. However, it's worth noting that despite the lowered price target, Citi has upgraded Pilbara Minerals to a "buy" rating, viewing it as their top pick among lithium companies due to the expected benefits from the completion of its P1000 expansion project at the Pilgangoora operation.

While the short-term outlook appears challenging, long-term projections for lithium demand remain positive. The latest Resources and Energy Quarterly report forecasts global lithium demand to grow by almost 13% annually until 2030, driven by increased adoption of electric vehicles and battery energy storage systems. This long-term potential may provide some comfort to investors, but the immediate headwinds continue to weigh heavily on Pilbara Minerals' stock price.