How to Invest in Lithium Stocks and the Lithium Market (Updated 2024)

What's the difference between battery-grade and technical-grade lithium?

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. These lithium products can also be used for technical applications in a pinch. Those aren't the only classifications, though. Pharmaceutical grade lithium carbonate is used in medicine.

How is lithium priced?

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. Pricing in the lithium industry has always been opaque due to the dominance of a few major producers, with investors having very little pricing information they can trust.

Simon Moores of Benchmark Mineral Intelligence has emphasized that pricing can be a difficult concept for investors to grasp.

“The biggest myth surrounding pricing is, ‘What is the price of lithium?’ Because there is no one price,” he said. “The newcomers want one lithium price, but the existing market has a wide range of lithium chemicals and then grades within a specification."

There are also distinct prices for lithium on markets in different regions, meaning lithium hydroxide in China will be priced slightly different than in Europe.

For those looking to invest in lithium who want to learn about lithium prices, it's best to read reports on lithium price trends from experts to help you understand what is happening in the market.

What factors drive the lithium market?

A major driver for the lithium market is its use in the lithium-ion batteries that power electric vehicles, smart phones and laptops.

Tesla (NASDAQ:TSLA) was the first carmaker to stoke excitement in the lithium space. The company’s Nevada-based gigafactory is what initially began to drive enthusiasm, but the company now has about half a dozen of these facilities.

Tesla is also not the only firm with megafactory ambitions. While China is currently leading the world in battery factory capacity, its global dominance is shrinking as other regions seek to build out their own battery manufacturing sectors. According to Benchmark analyst Evan Hartley, “China holds close to 70 [percent] of the battery cell pipeline capacity, which has led to significant policy movements in both Europe and North America in order to reduce reliance on Chinese cells for the EV transition.”

In Europe, Germany leads the way. The German government has pledged nearly a billion euros to support Swedish battery maker NorthVolt in constructing an EV battery plant in the country which is expected to begin production in 2026. In the UK, the government is investing 500 million pounds in subsidies for Tata Motors and Jaguar Land Rover to build a gigafactory in Southwest England. Set to be one of the largest in Europe, by the early 2030s, the gigafactory “will contribute almost half of the projected battery manufacturing capacity required for the UK automotive sector,” reported the BBC.

In the US, the Biden administration's Inflation Reduction Act, which was signed into law in mid-2022, is investing US$369 billion in climate action and energy, including EVs and EV infrastructure. Speaking at the Benchmark World Tour in January 2024, Terry Scarrott, principal consultant at Benchmark, emphasized that the US is now on track to surpass Europe in terms of installed capacity for battery cells by 2030.

In short, going forward the world will continue to need a lot of lithium. However, prices have been trading at two-year record lows and the lithium market is expected to remain oversupplied throughout 2024. This has driven key Australian producers to curb production rates and/or expansion plans, including Pilbara Minerals (ASX:PLS,OTC Pink:PILBF), Arcadium Lithium (ASX:LTM) and Mineral Resources (ASX:MIN).

Even production at the world’s largest lithium mine, Greenbushes in Australia, is facing cutbacks for this year as the operation’s JV partners — Tianqi Lithium (SZSE:002466) IGO (ASX:IGO,OTC Pink:IPGDF) and Albemarle (NYSE:ALB) — seek to rebalance the market. As reported by S&P Global, Australia’s lithium producers believe their efforts will translate into a rebound in lithium prices down the road.

How to invest in lithium stocks?

So what's the best way to invest in lithium? How should investors interested in lithium stocks begin? To start, it helps to understand the lithium production landscape.

For a long time, most lithium was produced by an oligopoly of lithium producers often referred to as the “Big 3”: Albemarle, SQM (NYSE:SQM) and FMC. Rockwood Holdings was on that list too before it was acquired by Albemarle several years ago.

However, the list of the world’s top lithium-mining companies has changed in recent years. The companies mentioned above still produce the majority of the world’s lithium, but China accounts for a large chunk of output as well. As already discussed, the Asian nation was the third largest lithium-producing country in 2023.

But the biggest producer continues to be Australia, where up-and-comer Liontown Resources (ASX:LTR,OTC Pink:LINRF) is set to bring its Kathleen Valley deposit in Western Australia into production in mid-2024. The mine’s operations will include a plant with a planned lithium production capacity of 3 million metric tons per year.

In other words, lithium investors need to be keeping an eye on lithium-mining companies in Australia and other jurisdictions in addition to the New York-listed chemical companies that produce the material.

Of course, smaller lithium stocks are worth watching too — to find out which ones are currently thriving, check out our top lithium stocks article. You can also check out our articles on the biggest Australian stocks, top performing Australian lithium stocks, and top Canadian lithium stocks.