There are a number of reasons investors are getting interested in lithium stocks. Here is a (very) brief overview of some lithium basics and what’s been happening in the market lately.
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 ever-increasing hype surrounding Elon Musk and Tesla’s (NASDAQ:TSLA) sweeping electric vehicle plans.
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.
The lithium rundown
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 electric vehicles — demand for lithium from this sector is growing quickly.
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 once again the world’s largest lithium producer in 2017, 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.
Current state of the lithium market
Tesla has stoked a lot of excitement in the lithium space, and despite recent headwinds lithium stocks as a whole have benefited. The company’s Nevada-based gigafactory is what first began to drive lithium excitement, but now it’s not the only lithium-ion battery megafactory that Tesla has planned.
It’s also not the only firm with lithium-ion battery megafactory ambitions — as Benchmark Mineral Intelligence has pointed out, “the megafactories in China are also rising.” The firm expects the Asian nation to account for more than 50 percent of the world’s battery capacity for at least the next decade.
In short, the world will continue to need a lot of lithium. And already some of the major producers are trying to make sure they’ll be able to provide it.
For example, top lithium miner Albemarle (NYSE:ALB) announced plans to double production at its Australia-based Greenbushes mine in early 2017. Then, in mid-2018, the company announced a second expansion. FMC (NYSE:FMC), another large lithium producer, revealed its own expansion in early 2018.
While some market watchers believe that those and other expansions will push the lithium market into oversupply, many experts have emphasized that the opposite is true. Earlier this year, well-known names in the lithium space, including Benchmark Mineral Intelligence, Joe Lowry and Chris Berry, shared their thoughts on why lithium oversupply and price crash predictions are overblown.
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 producers often referred to as the “Big 3”: Albemarle, Sociedad Quimica y Minera de Chile (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 fourth-largest lithium-producing country in 2017 in terms of mine production, coming in behind Australia, Chile and Argentina.
What’s more, Australia’s largest lithium mine, called Greenbushes, is majority controlled by China’s Tianqi Lithium (SZSE:002466). Tianqi owns a 51-percent stake in Talison Lithium, which runs the mine, while Albemarle owns a 49-percent stake in Talison via its acquisition of Rockwood Holdings.
All in all, the market share for the “Big 3” lithium producers has dropped from about 85 percent to 53 percent, while China now has about 40 percent of the world’s market share. In the future, China is expected to fuel lithium-ion battery production, which is set to increase substantially in the coming years.
In other words, lithium investors need to be keeping an eye on lithium-mining companies in China 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 Canadian lithium stocks article. It’s updated on a quarterly basis when possible.
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. 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. Since its inception in 2014, it has become a trusted source of price data.
Even so, even Simon Moores, managing director at Benchmark, has emphasized that pricing can be a difficult concept for lithium investors to grasp. “The biggest myth surrounding pricing is ‘what is the lithium price?’ because there is no one price,” he explained at a recent conference.
“The newcomers want one lithium price, but the existing market has a wide range of lithium chemicals and then grades within a specification,” he continued.
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 lithium average prices for lithium carbonate and lithium hydroxide, as well as a lithium price index, all on a monthly basis. For more on the methodology, click here. You can also click here for the latest lithium price commentary from Benchmark.
This is an updated version of article originally published by the Investing News Network in 2015.
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Securities Disclosure: I, Amanda Kay, hold no direct investment interest in any company mentioned in this article.