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Should you be watching lithium stocks?
Electric vehicles are looking ever more like the 21st century’s de facto transport mode. As they get ever more popular, so too does demand for their batteries’ key ingredient: lithium.
Why invest in lithium?
Speculators and traders are starting to invest in lithium in greater numbers as the number of people buying EVs increases. More than one million plug-in hybrids and pure EVs were sold in Europe in 2020 alone.
The metal is in higher demand than ever before. Previous sectors, like glass making and medical equipment, are seeing their lithium needs totally outstripped by vehicle manufacturers. In fact, 54% of total lithium use comes from the auto industry.
To give an indication of the EV boom, Tesla has become one of the most successful stocks in the world. The carmaker’s shares are worth over $600 at the time of writing, and it is gearing up to become one of the largest companies on the S&P 500 with a market cap of in excess of $600bn.
As well as EVs, the metal has many uses in many different sectors, including:
- Air treatment
- Metallurgical powders
- Primary batteries
Which lithium stocks should you watch out for?
As lithium stocks are becoming one of the hottest properties in commodities trading, it pays to know some of the market’s top performers.
Albermarle is the world’s largest lithium producer. Headquartered in Charlotte, North Carolina, US, it has operations in Chile, Australia, China and Europe as well as the United States. In 2019, it accounted for 19% of all globally produced lithium. Overall, Albermarle produces roughly 100 lithium-related products.
Crucially, it has a number of other metallic products in its portfolio, which should help those looking to diversify away from purely lithium mining stocks. These include catalysts and bromines used in metalworking industries.
It should be noted that lithium, though, remains Albermarle’s key focus and is the highest margin segment of the US firm’s business.
With a market cap of $400m, Galaxy resources is keen to expand its current operations. The Australian miner produces the in-demand metal from hard-rock operations in Mount Cattlin, Australia.
It is also actively developing new mines to cope with automobile’s intense appetite for lithium: the Sal De Vida Catamarca brine project in Chile and the James Bay hard rock project in Canada.
Sal De Vida Catamarca is wholly owned by galaxy and is considered one of its premier assets. It holds 1.1m tonnes of retrievable lithium carbonate equivalent (LCE) and 4.9 million tonnes of LCE in Mineral Resources. James Bay is estimated to hold a further 40.8m metric tonnes of minerals.
Australia enjoys substantial mineral wealth and is something of a commodity trader’s geographical dream. Many young lithium miners are establishing themselves there, including Pilbara Minerals.
Founded in 2016, Pilbara wholly owns its chief mineral development project. The Pilgangoora project is a prospective lithium and tantalum development. A hard-rock project, Pilbara is aiming to eventually produce up to 1.2 million tonnes of spodumene and one million pounds of tantalum per year here.
Another Australian firm, this time boasting a market cap of $1.35bn, Orocobre has been in operation since 2005.
Oricobre is currently developing the Olaroz lithium carbonate project in Argentina. It also owns a 35% stake in Advantage Lithium, which it spun out in return for the sizeable stake back in 2016.
Advantage Lithium’s primary project is a joint venture developing the Cauchari lithium project, which lies south of Olaroz. Orocobre also produces borates from several other mines and facilities in Argentina.
Consider a lithium ETF
A lithium-focussed ETF (exchange traded fund) groups several lithium mining stocks together in one instrument, which can help investors gain exposure to the commodity with potentially lower risk than single stock exposure would. ETFs behave in a similar way to stocks, but they take their value from investing across a group of companies in the same sector. So, instead of putting all your lithium ores in one processor, you can invest in numerous different seams at the same time.
We offer the Global X Lithium & Battery Tech ETF. It invests in a range of companies that produce lithium or make lithium-based batteries, giving exposure to both the lithium and battery markets. More than 70% of investments in this ETF are in Asian companies. Most of the remaining holdings based in the US. Its top ten holdings, which account for 57% of its overall portfolio, are as follows (as of August 2020):
|Asset||ETF % share|
|NAURA Technology Group||4.96%|
|Yunnan Energy New Material||3.62%|
All the above should give you some indicators as to why it might be a smart move to invest in lithium as a tradeable asset class. As demand rises, it’s possible that lithium stocks will continue to perform highly.