Investors have become increasingly interested in lithium stocks for several years now, and there are a number of reasons why.
Some are seasoned metals investors interested in looking beyond silver and gold. Others are new investors, drawn into the space by the hype surrounding Elon Musk and Tesla Motors’ (NASDAQ:TSLA) lithium-ion battery gigafactory.
Whatever the reason, it’s important to get familiar with the lithium market before investing in lithium stocks. Here is a (very) brief overview of some of the basics.
Lithium is a soft, silver-white metal used in pharmaceuticals, ceramics, grease, lubricants and heat-resistant glass. It’s also used in lithium-ion batteries, which power everything from cellphones to laptops to electric vehicles — demand from this sector for lithium is growing quickly.
Lithium is found all over the world, in both hard-rock deposits and evaporated brines. There’s some contention as to which type of deposit is superior, but generally there are trade offs either way.
Editor’s note: As one of of our readers points out and expands upon in the comments below, lithium is also found in clay deposits.
The world’s largest hard-rock mine is the Greenbushes mine in Australia, and the bulk of the world’s lithium brine production comes from salars in Chile and Argentina. Most large lithium reserves are in Chile, and the prolific “lithium triangle” spans Chile, Argentina and Bolivia. Australia was the world’s largest lithium producer in 2016, and it was followed by Chile and Argentina.
Battery grade vs. technical grade?
There’s more than one type of lithium product out there. Technical-grade lithium is used in ceramics, glass and other industrial applications, while battery-grade lithium carbonate and lithium hydroxide (which are much more expensive) are used to make lithium-ion batteries; they can also be used for technical applications in a pinch.
The current state of the market
Tesla has stoked a lot of excitement in the lithium space with its gigafactory plans. Benchmark Mineral Intelligence estimates that the Nevada factory could need up to 25,000 tonnes of lithium by 2020, but it’s not the only gigafactory set to come online.
As Visual Capitalist notes, global lithium-ion battery production is set to increase 521 percent by 2020, and China’s battery sector is the largest factor behind that growth.
In short, the world will continue to need a lot of lithium, and some of the major producers are trying to make sure they’ll be able to provide it. For example, take Albemarle (NYSE:ALB), the world’s biggest producer of lithium. In March, the company announced plans to double its production at its Greenbushes mine.
Even so, many market watchers believe that it will be tough for lithium producers to meet demand. As Joe Lowry of Global Lithium recently wrote, “supply will have a hard time keeping up with demand well into the next decade and perhaps beyond.” He has said that new supply from the Mt. Cattlin and Mt. Marion mines will have a “positive impact” on supply.
Lithium stocks, big and small
There isn’t much middle ground when it comes to the lithium space. There’s the “Big 3” — a group of large chemical companies responsible for much of the world’s lithium production — and then there are a number of junior lithium explorers and developers.
The Big 3 is made up of Sociedad Quimica y Minera de Chile (NYSE:SQM), FMC (NYSE:FMC) and Albemarle. Rockwood Lithium was also on that list until its parent company was bought out by Albemarle in 2014. Lithium makes up only a small portion of revenues for these companies, making it difficult for investors to gain exposure to the metal by investing in them.
Orocobre (TSX:ORL) is ramping up production at its Salar de Olaroz project in Argentina and also holds a partnership with Advantage Lithium (TSXV:AAL). Other brine-focused companies include Pure Energy Minerals (TSXV:PE) and Dajin Resources (TSXV:DJI).
Through a joint venture with SQM, Lithium Americas (TSX:LAC) is developing the Cauchari-Olaroz brine deposit, also in Argentina. In February, the company announced that the project continues to advance “as planned.”
Companies focused on hard rock include Frontier Lithium (TSXV:FL) and Nemaska Lithium (TSXV:NMX). Nemaska is a bit further along. In fact, in late March, the company announced the results of initial spodumene concentrate production at its Whabouchi mine
Getting a look at lithium prices isn’t easy, and that can make it difficult for investors who are looking to assess the viability of a given project. Lithium products aren’t traded on the public market, and major producers don’t often give out stats.
That said, Benchmark Mineral Intelligence is a good place to start. In fact, the company’s managing director, Simon Moores, recently tweeted lithium price projections over the next three years:
— Simon Moores (@sdmoores) February 2, 2017
It’s expected that Chinese lithium-ion battery makers will cut domestic prices by 40 percent in 2017, although that is unlikely to interfere with global battery markets.
This is an updated version of article originally published by the Investing News Network on September 14, 2015.
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Advantage Lithium, Nemaska Lithium and Dajin Resources are clients of the Investing News Network. This article is not paid-for content.