Lithium Is Becoming The New 'White Gold' — But Its Use Can Present More Complex Challenges

Zinger Key Points
  • Prices for raw lithium reached an all-time high in China in mid-November.
  • The market has corrected since then, but the sector still presents strong fundamentals.

Lithium is quickly becoming one of the most precious commodities of the day.

As the world desperately tries to move towards more sustainable alternatives to carbon-emitting technology, the metal is becoming a key in the transition to electric vehicles (EVs) and away from fossil fuels.

The Inflation Reduction Act of 2022 included several provisions aimed at stimulating the clean energy economy, such as solar, wind and clean hydrogen, by committing between $0.7 and $1.9 trillion in climate-related benefits through 2050.

Part of that included expanding tax credits for EVs and pushing for domestic sourcing of materials to promote a local EV supply chain.

“Everybody needs lithium,” said Eric Norris, lithium president of Albemarle Corporation ALB, as per Bloomberg.

Lithium production is entering a more regionalized phase through the formation of new supply chains. Together with increased demand from a rise in EV sales, the metal is experiencing an unprecedented price boost.

Since the act went into law in August, more than $13 billion in investment has gone toward raw material production for batteries and EV manufacturing.

In mid-November, prices for raw lithium reached an all-time high in China. The commodity has since dropped -3.54% but it’s still up on a year-over-year basis by 156.85%.

Global X Lithium & Battery Tech ETF LIT has not yet caught on. The ETF tracks the Solactive Global Lithium Index and invests in the full lithium cycle, from mining and refining the metal, through battery production.

The ETF was down 21.8% since January, underperforming the S&P 500 by 4.5 basis points.

Fully-integrated lithium company Livent Corp LTHM, which was selling at $23.92, was only down 6.45% since January, outperforming the general equity market. The stock, however, was down almost 50% from its price one month ago.

While the lithium industry was experiencing a correction from its mid-November highs, the basic principles behind its thesis (rising demand for a scarce resource) should continue to support the industry’s fundamentals in the medium to long term.

“If you take those forecasts of demand, then we can never expand lithium supply quickly enough to catch up,” said Livent CEO Paul Graves in a recent interview with the Financial Times.

While demand for the metal soars, the global infrastructure is still not in place to meet it.

Shortages in lithium could be a new normal for the next decade, said the executive, leading to fewer car sales and hampering plans to decarbonize the auto industry as soon as it's needed to meet climate change goals.

Albemarle Corporation's lithium division, which accounted for 41.0% of revenue in 2021, was up 7.7% since January but its price throughout the year had shown unsettling volatility.

Now sitting at $254.34 per share, the company had a 52-year high of $334.55 and a low of $169.93.

While the price of raw lithium was expected to continue on an upwards course, industries based around processing and manufacturing with the commodity present a more complex landscape.

Major macroeconomic factors can exert strong effects on demand for new vehicles and affect those companies on the battery side of the lithium industry. Companies purely focused on the extraction and sale of lithium as a raw material such as Sociedad Quimica y Minera de Chile SQM might have the advantage through volatile times, but risk losing the upper hand in the long term.

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Posted In: NewsCommoditiesGlobalEconomicsMarketsclimateelectric vehiclesEric NorrisEVslithiumPaul Graves
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