How to Invest in Lithium

By Kirsteen Mackay

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Lithium is a pivotal component of renewable energy and electric vehicles. Understand its market dynamics and discover investment opportunities.

Lithium on Hills of salt - salt extraction area at the world's biggest salt plain Salar de Uyuni, Bolivia.
Lithium Investments: Navigating the Future of Battery Metals

This article is part of our series on investing in battery metals. You may also like our comprehensive guide to metals and mining.

Lithium is a hugely important resource nowadays, particularly when it comes to renewable energy and electric vehicles. Lithium-ion batteries are used to power everything from smartphones to electric cars, which is why demand for lithium is expected to grow rapidly in the coming years as the world shifts toward cleaner forms of energy. Lithium is also used in other applications, such as in the production of glass, ceramics, and lubricants.

The Lithium Market

According to the World Economic Forum, global lithium supplies are under strain due to rising EV demand. And the International Energy Agency (IEA) believes there may be a shortage of lithium in the world by 2025.

One reason for this is that transitioning to wind and solar renewable energy means relying on weather conditions, which affect its ability to provide a reliable consistent power supply. However, lithium batteries allow for significant energy storage, making renewables a feasible alternative to fossil fuels.

However, as with any mined commodity, lithium demand is cyclical, and its spot price can fluctuate wildly, leading lithium stock prices to be extremely volatile.

Based on McKinsey's data, nearly 60% of current lithium extraction is for battery-related uses, a number that might climb to 95% by 2030.

Lithium's Geopolitical Dance: Demand, Supply, and Global Stakes

The supply of lithium is not only affected by increasing demand but also by the concentration of resources in a few locations.

Over 50% of current lithium production occurs in regions with significant water scarcity or stress, presenting additional challenges to the supply chain. In these areas, there may not be enough water available to support the production of lithium, which requires significant amounts of water for processing.

That's why, as demand for EVs and green energy is projected to increase and resources are scarce, a lithium price surge is predicted. 

China is the world’s largest EV market, with Europe in second place and the US in third. For all of these to see continued growth, affordability is key. Therefore, it's in all their interests to secure lithium resources.

Major lithium producers include Albemarle Corp (NYSE: ALB), SQM (NYSE: SQM), and Ganfeng Lithium Group Co Ltd (SHE: 002460). These companies are concentrated in a few regions, primarily South America and Australia, where large deposits of lithium have been discovered.

In addition, there are ongoing efforts to develop new sources of lithium, including innovative extraction methods and exploration of new deposits. However, bringing new sources of lithium to market can be a slow and costly process, which may result in continued supply chain pressures in the short-term.

Overall, the lithium market is expected to continue to experience strong growth in the coming years. However, the market may also face challenges related to supply chain sustainability and environmental concerns, which will need to be addressed to ensure long-term viability.

Investing in Lithium Mining Companies

Are you looking for a list of lithium companies to invest in? Indeed, this area presents an attractive opportunity for investors looking to capitalize on the growing demand.

Some publicly-listed lithium companies include:

  • Albemarle Corp (NYSE: ALB), an American specialty chemicals manufacturer headquartered in Charlotte, North Carolina, operates three divisions: lithium, bromine specialties, and catalysts. ALB is a major provider of lithium for electric vehicle batteries.

  • SQM (NYSE: SQM), a Chilean chemical company, supplies plant nutrients, iodine, lithium, and industrial chemicals. As the world's largest lithium producer, it sources its natural resources and operates its primary production facilities in the Atacama Desert in Tarapacá and Antofagasta regions.

  • EnerSys (NYSE: ENS), a global leader in industrial batteries, pioneers sustainability using its advanced lithium technology.

  • Enovix Corporation (NASDAQ: ENVX) designs, develops, and manufactures advanced silicon-anode lithium-ion (Li-ion) batteries using its unique three-dimensional (3D) cell architecture.

  • FREYR Battery (NYSE: FREY) provides a clean Nordic solution to the rising global demand for high-density, cost-competitive lithium battery cells used in stationary energy storage (ESS), electric mobility, and marine applications. The company aims to produce environmentally friendly lithium battery cells with a business model designed to optimize long-term value and deliver sustainable, superior returns to stakeholders.

  • Lithium Americas (NYSE: LAC) (TSX: LAC): Lithium Americas Corp. advances lithium projects in Argentina and the United States toward production. In Argentina, it progresses the Caucharí-Olaroz project to its first production and sees Pastos Grandes as regional growth. In the US, it has secured the Record of Decision for the Thacker Pass project and is moving towards construction.

  • Livent Corporation (NYSE: LTHM): A US-based company spun off from FMC Corporation, Livent specializes in the production of performance lithium compounds.

  • Sigma Lithium Corporation (NASDAQ: SGML) (TSX.V: SGML): Sigma Lithium offers high-purity, green, and sustainably sourced lithium. The company commits to fueling the upcoming generation of electric vehicles. Furthermore, Sigma Lithium positions Brazil at the forefront of the global energy transition materials supply chain through environmentally and socially sustainable practices.

Investing in Lithium Producers

One of the main benefits of investing in established lithium producers like Albemarle and SQM is their proven track record of success and their ability to weather market fluctuations. These companies have established customer relationships, a strong global presence, and a diversified portfolio of products and services. They also have access to established supply chains, infrastructure, and technology that newer entrants may not have.

Newer entrants like Lithium Americas and Livent may offer the potential for higher returns due to their growth potential, particularly through M&A, and their ability to capitalize on emerging market opportunities. These companies are often focused on a specific niche or geographic area and can be more agile and responsive to market changes.

When evaluating potential investments in lithium mining companies, there are several key factors to consider.

  • Lithium quality: Companies with high-quality resources that are easily extractable are generally better positioned to meet demand and generate profits.

  • Production costs: Lower costs can result in higher profit margins.

  • Exploration efforts: Companies actively exploring for new lithium deposits may be better positioned to secure future supply and stay ahead of competitors. Exploration efforts should be balanced with current production, as companies too heavily focused on exploration may not generate sufficient profits in the short term.

  • Additional factors: The company's management team, financial stability, and environmental and social responsibility.

Overall, investing in lithium mining companies can offer significant potential for returns, but it is important to carefully evaluate each opportunity and consider a range of factors to make informed investment decisions.

It is also important to closely monitor the global supply and demand dynamics of lithium, as changes in these factors can significantly impact the profitability of lithium mining companies.

How to Invest in Lithium Batteries

Battery tech powers the energy revolution in deploying electric cars, transforming transport systems, and ensuring storage capacity for renewable energy like solar and wind power. With significant government stimulus packages boosting the transition to low-carbon fuels, demand for batteries skyrockets. This surge creates lucrative investment opportunities in lithium and other metals used in batteries.

Investing in Lithium ETFs

To reduce risk, some investors prefer to invest in a lithium-focused ETF rather than individual stocks. This can widen access to lithium investment opportunities without having to keep your finger on the pulse of the latest and greatest lithium stocks. 

Some popular lithium ETFs include:

  • Global X Lithium & Battery Tech ETF (LIT)

  • iShares Global Clean Energy ETF (ICLN)

  • VanEck Rare Earth/Strategic Metals ETF (REMX)

Risks To Investing in The Lithium Market

  • Volatility: Lithium stocks, like other commodity stocks, are subject to volatility.

  • Liquidity: Smaller stocks may not have much liquidity so the spread between the buy and sell price could be wide.

  • Demand Slowdown: Demand for lithium is heavily influenced by the growth of the electric vehicle market and any slowdown or disruption in this market could impact prices.

  • Commodity Prices: fluctuations in commodity prices are common and lithium is no exception.

  • Political Instability: Political unrest or uncertainty in a region can lead to disruptions in the production, transportation, and distribution of commodities. This can cause a decrease in supply, leading to higher prices for consumers. Political instability can also affect currency exchange rates, which can have an impact on commodity prices.

  • Government Policies: Subsidies, taxes, regulations, and trade agreements can affect the production, supply, and demand of commodities.

  • Environmental & Social Impact: Lithium mining and processing can have significant environmental impacts, including water and air pollution and habitat destruction.

The Future of the Lithium Market

Overall, the outlook for the lithium market is positive due to the increasing demand for lithium-ion batteries. Therefore, investing in lithium explorers and producers or a lithium ETF could potentially prove lucrative. 

However, it may not be plain sailing as the lithium spot price is likely to remain volatile as the supply of lithium carbonate increases. It is also important for investors to monitor the risks such as technological advancements and political instability in key producing regions, while paying particularly close attention to the dynamics of supply and demand.

The best way to invest in lithium depends on your investment time horizon, risk profile, and how you like to diversify your portfolio.

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IMPORTANT NOTICE AND DISCLAIMER

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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