Lithium: Energising The Investing World
With the rise of electric cars, lithium has become a hot commodity among investors.
Published on 12 October 2017
While investors and markets haven’t forgotten about gold, silver, and platinum, it seems that lithium is now the commodity energising global markets and firing up investor interest.
Much of this interest in lithium is a result of recent reports of the imminent demise of fossil fuel-powered vehicles. A string of government and private industry announcements around the globe lately indicate that fossil fuel-propelled vehicles as we know them will be phased out, possibly within the next 20 years. France and Britain have already stated that they want no more combustion engines produced by 2040 and China – the world’s biggest vehicle market – recently announced that it is considering a ban on gas and diesel cars that could go into effect “in the near future”.
Volvo will introduce the first 100% electric car in China in 2019, and Ford expects that 75% of its vehicles sold in the country will have electric options by 2025.
Perhaps the biggest champion of electric cars is Elon Musk, whose company Tesla has emerged as the leader in the electric car market. The company’s stock has surged by around 66% so far this year, hitting an all-time high of US$383 per share.
All of this is good news for lithium miners, end-users of the mineral, as well as investors in lithium-related stocks.
Lithium is a chemical element (symbol Li) and a silvery-white alkali mineral. It is the lightest of all the metals, but also highly reactive and flammable (as many Samsung Galaxy Note7 phone users know all too well). It does not appear as a pure element in nature, but can be found within mineral deposits or salts, including brine lakes and seawater, and must be extracted.
Lithium is a key component in lithium-ion rechargeable batteries that fire up many essential lifestyle accessories including portable electronic devices used by people all around the globe such as laptops and smartphones.
Lithium is also used in batteries for electrolytes and electrodes, and this is the biggest driver of growth in demand for the mineral – and biggest factor behind its electrifying stock market performance. Analysts expect to see a further spike in demand for lithium batteries in the coming years to power hybrid, plug-in, and fully electric cars, trucks, bikes, and buses.
While there are high concentrations of lithium in the oceans, the technology to really tap into this source of the mineral is not fully developed yet. Lithium recycling is virtually non-existent too, but this could change as mineral prices rise.
This means that current sources of lithium are mined on land, with 2016 production increasing by 12% year-on-year to 35,000 tonnes, according to the US Geological Survey. Of this, 14,300 tonnes (41%) were mined in Australia, 12,000 tonnes in Chile (35%), 5,700 tonnes in Argentina (16%), 2,000 tonnes in China (6%) and 900 tonnes in Zimbabwe (2.5%). The current known resources of lithium are estimated to be around 14 million tonnes.
Historical records for lithium mining show a spike in activity, with output going from basically zero in 1950, and by 2016 a doubling in output on the 2005 figure.
For investors looking to cash in on the lithium craze, there are several types of lithium-related stocks that they can consider.
Firstly, they could invest directly into lithium miners, such as Sociedad Quimica y Mineral de Chile and FMC Corporation – two US-listed stocks that have doubled in value so far this year. Shares of Abermarle – the company that mines the only lithium produced in the US – have risen from a low of US$76.32 to a high of US$137.48 over the past 12 months.
There are some 13 mining stocks listed on the Australian Stock Exchange with lithium exposure – including Galaxy Resources, Orocobre, Pilbara, Neometals – and the majority of these have more than doubled in value over the past year.
Another option for investors is exchange-traded funds (ETFs) that track the performance of a group of companies involved in the lithium industry – from mining and refining to battery production.
Perhaps the most popular such ETF is the Global X Lithium and Battery Tech ETF, which currently has US$700 million in assets and has risen over 50% so far this year.
The fund invests in companies exposed to lithium and includes both producers and consumers of lithium.
A third option for investors is to buy shares of companies that are manufacturing the products that are driving demand for lithium. The perfect example of this is Tesla, which is spearheading the electric-car revolution.
While there is immense interest in lithium among investors at the present moment, many listed lithium miners are near their all-time peak and lithium-related stocks and ETFs are soaring to dizzying heights. Some analysts say that this market sector has run too far and too fast, and that investors need to exercise some caution at what some observers have labelled a “speculative frenzy.”
This suggests caution, but if you believe that the way of the future is clean energy alternatives and electric-powered vehicles, lithium-related assets should be an essential element of your investment portfolio.