How to Invest in Lithium Stocks and the Lithium Market

- June 28th, 2021

For investors interested in battery metals, here is a brief overview of the lithium market.

Growing demand for battery metals is giving a wide variety of investors a good reason to be interested in lithium stocks.

Seasoned metals investors who want to look beyond silver and gold are getting involved, while new investors are being drawn into the space by discussions around increasing consumer demand for electric vehicles (EVs) and government initiatives for building out EV infrastructure.

Whatever the reason, it’s important to get familiar with the lithium market before investing in lithium stocks. Here is a brief overview of some of the basics.

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Lithium resources

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 cell phones to laptops to EVs — demand for lithium from this sector is growing rapidly.

Lithium is found globally in hard-rock deposits, evaporated brines and clay deposits. There’s some contention as to which type of deposit is superior, but generally there are tradeoffs for any option.

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 once again the world’s largest lithium producer in 2020, followed by Chile and China.

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. These lithium products can also be used for technical applications in a pinch.

Current state of the lithium market

Tesla (NASDAQ:TSLA) was the first carmaker to stoke a lot of excitement in the lithium space. The company’s Nevada-based gigafactory is what first began to drive lithium excitement, but it’s not the only lithium-ion battery megafactory that Tesla has planned.

Tesla is also not the only firm with megafactory ambitions — as Benchmark Mineral Intelligence has pointed out, China is building battery megafactories at a rate of one every week. Of the 211 lithium-ion battery megafactories the firm is tracking, 156 are in China, while 22 are in Europe and 12 are in the US.

Auto manufacturers such as GM (NYSE:GM) and Ford (NYSE:F) have ramped up their EV production plans. Notably, in the US the Biden administration has proposed investing US$174 billion in EVs and EV infrastructure, in addition to pledging to reduce carbon emissions by 50 percent by 2030.

 

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In short, the world will continue to need a lot of lithium supply, and some of the major lithium miners are already trying to make sure they’ll be able to provide it.

For example, in early 2021, top lithium miner Albemarle (NYSE:ALB) announced plans to double lithium production over the next five years at its Silver Peak operation in Nevada in order to keep up with rising EV demand in North America. This will require an investment of $30 to $50 million.

Another large lithium producer, Livent (NYSE:LTHM), which was spun off of FMC (NYSE:FMC) in 2018, is completing a 5,000 tonne hydroxide addition at its US project; it is expected to reach commercial production by the third quarter of 2022. Livent’s phase one carbonate expansion of 10,000 tonnes in Argentina is expected to hit commercial production by the first quarter of 2023.

These market-shaping events and many more have analysts bullish on long-term fundamentals for the metal, in particular lithium demand, as adoption of electric cars increases.

Lithium stocks, big and small

So where 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, making Albemarle that much bigger.

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. The Asian nation was the third largest lithium-producing country in 2020.

But the biggest producer continues to be Australia. In late 2020, Australian mining company IGO (ASX:IGO) announced the purchase of a 49 percent stake in Tianqi Lithium Energy Australia, giving it a 25 percent interest in the Greenbushes lithium mining and processing operation, as well as a 49 percent interest in Tianqi’s Western Australia-based Kwinana lithium hydroxide plant.

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

 

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Of course, smaller lithium stocks are worth watching too — to find out which ones are currently thriving, check out our top Canadian lithium stocks article. It’s updated on a quarterly basis when possible. You can also check out our top Australian lithium stocks article.

Exact lithium prices?

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, managing director at Benchmark Mineral Intelligence, has emphasized that pricing can be a difficult concept for lithium investors to grasp. “The biggest myth surrounding pricing is ‘what is the price of lithium?’ because there is no one price,” he explained.

“The newcomers want one lithium price, but the existing market has a wide range of lithium chemicals and then grades within a specification,” continued Moores.

His company publishes six lithium carbonate grades with a minimum specification of 99 percent Li2CO3 purity, four lithium hydroxide grades with a minimum specification of 55 percent LiOH and a spodumene feedstock price with a standard specification of 6 percent Li2O.

Benchmark also releases broader global-weighted average prices for lithium carbonate and lithium hydroxide, plus a lithium price index, all on a monthly basis. For more on methodology, click here.

In an effort to bring more transparency to lithium prices, the London Metal Exchange (LME) is working with price reporting agency Fastmarkets to launch a lithium futures contract in the summer of 2021. Currently, the LME is publishing weekly midpoint prices for two of Fastmarkets’ key assessments for lithium carbonate and lithium hydroxide.

This is an updated version of article originally published by the Investing News Network in 2015.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article. 

What's In Store For Lithium?

 
Find Out With Our FREE Outlook Report That Contains Exclusive Information Not Found Anywhere Else!
 

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3 responses to “How to Invest in Lithium Stocks and the Lithium Market

  1. That was a ton of info. I just started looking at lithium, and that info that was shared i learned a lot. Curious as to what Company that will be or a private investment. hope a follow up will be coming, thanks John

  2. Yes there is a 3rd type of Lithium source, Clay and this doesn’t need any evaporation pools or complex mechanism such as Hark Rock lithium to extract, The Tesla deal with the Sonora Project JV with REM Plc (LON:REM – rareearthmineralsplc.com) is using this as the source of it’s lithium.
    It’s not such a small resource just a very new source, with only 10% of their strike zone explored they can still produce Tesla requirements of 50,000 tonnes of lithium without issue from the amount of resource they have and the clay is on the surface so it’s a open pit operation so should be very cheap to extract and produce, 40kms of continuous / semi-continuous lithium- bearing clays. Currently focused on Beunavista 6 km at surface exposure
    – Drilled circa 3km
    – Highest reported grades of 2,210ppm Li
    Funding for the operation is the only real outstanding issue and Tesla is wanting in on that also so should not be a problem either since the conditions were basically REM need to meet the initial 35,000 MT target in 2 years, with Tesla involved in funding this should not be thought of huge hurdle, especially since REM already have a pilot plant up and running producing the Lithium that Tesla wants at high purity.
    Since the Sonora Project (REM Plc & Bacanora) is only a short train ride from the Tesla Giga Factory this is a big plus point for the USA. And there are approx 20 car assembly plants near by that could want the lithium regardless. With VW and Porsche announce all electric vechicles by 2018 (http://www.cnbc.com/2015/09/14/reuters-america-porsche-and-audi-unveil-electric-cars-to-take-on-tesla.html) along with BMW i8 Series demand is set to rocket.
    REM Plc also own part of Western Lithium as well as a large chunk of BCN as well as another operation in Europe.
    REM Plc may be a small operation at the moment but once finance is in place (with Tesla backing that’s pretty much a given see RNS here http://www.lse.co.uk/share-regulatory-news.asp?shareprice=REM&share=rare_earth_min) and production is started it will be a huge player in the market.
    Musk would not have picked REM Plc as it’s 1st major Lithium supplier if it thought REM Plc couldn’t deliver the lithium. The Tesla Lithium deal with the Mexican Sonora Project (REM plc JV with BCN) breaks the choke hold I think of the ‘Big 3’ on the lithium market, and that’s why possibly the press in general appear to be so flippant about this REM Plc deal..
    The director David Lenigas tweets this as the ‘Saudi of Lithium’ because of the size of the resource here in Mexico.
    As always DYOR.

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