Electric Cars Increase Demand for Lithium: Which Companies Will Attract Attention?
Brass is the main metal for the global green energy transition. However, there is another metal which is vital for the process, and this is lithium. This article is devoted to this material, primarily used in batteries and energy storage units. Unlike brass quotes, lithium quotes are trading near their all-time highs instead of falling. Over the past two years, lithium prices increased by 1,280%. This article explains what this metal is like and which companies produce and sell it.
Lithium is a light, soft alkaline metal of silvery white colour. It is used rather widely, including in chemical electricity sources, metallurgy, electronics, nuclear energy, healthcare, lubricants, space industry, glass industry, etc. The main consumers of lithium are glass industry (29%) and energy (27%).
The main lithium mines are situated in the so-called Lithium Triangle on the territory of Argentina, Bolivia, and Chile. This region holds about 70% of global lithium reserves. The Top 5 list of countries with largest reserves features Bolivia, Argentina, Chile, Australia, and China.
There are two ways of mining lithium. The first one is the ore method. It implies construction of a mine or quarrying. The metal itself is produced from pegmatite minerals. The second way is producing lithium from water solution.
The second method costs less: the solution is pumped up to the surface from the depth of several meters. It fills up huge pools and then evaporates under the sun, leaving in the pools a concentrate that is gathered and transported to the plant. There lithium is separated from the white flour, pressed in bricks, and sent to customers.
The second method is only used in countries with dry climate. In many Northern lands this method can hardly be used because water will need to be heated up in the process of gathering lithium, and this implies additional costs. So, only countries with extremely cheap energy carriers can afford this.
Developed countries aim at switching to green energy, decreasing emissions in the environment. However, somebody needs to pay for this. In our case, nature suffers in the countries where lithium is produced by evaporating water. To get a ton of lithium, 2 million liters of water has to be pumped from ground reserves. As a result, the amount of fertile lands shrinks, hazardous waste pollutes rivers and kills all living creatures.
As said above, lithium is widely used and has always been in demand. However, the volumes required by the global market used to be much smaller than these days, and lithium companies managed to satisfy the demand fully. The situation changed abruptly when humanity started mass production of electric cars because lithium is used in batteries. So, the metal price started growing at once.
Take a look at the diagram of global sales of electric cars. Since 2014, sales of electric cars have been growing. In 2018 and 2019, sales volumes remained at a more or less equal levels, i.e. there was a minor pause. However, in 2020 and 2021, sales doubled.
Now check out the lithium price chart. In 2015, the quotes leaped up by 300%, then in 2018-2019 the price returned to the level of 2015 (those years, electric car sales did not grow). And in 2020, the growth of the quotes started again, and by now the quotes have risen by 1,280%.
The dynamics of electric cars sales and lithium prices correlate. Hence, the main demand for lithium is created by the car industry. And the more electric cars appear, the higher becomes the demand for the metal.
Now take a look at the forecast sales of electric cars by 2040, presented by the European Observatory of Alternative Fuels.
By the forecast, we are just at the beginning. 2021 is barely noticeable on the diagram. What happens to lithium prices in the future then if the demand for it is supposed to be colossal?
In the global lithium market, the leaders are American, Asian, and Australian companies. The largest one is the American Albemarle Corporation (NYSE: ALB).
Albemarle Corporation mines, produces, and sells specialised chemicals and metals. In the lithium segment, the company offers carbonate, hydroxide, lithium chloride, and other lithium products, used in lithium batteries, among other things. In Phoenix at a conference the company announced that it was going to use the money made on the growth of lithium prices for building a new plant able to produce 100 thousand metric tons of the metal a year, which is more that the whole company currently produces.
The quotes of Albemarle shares goes along the quotes of lithium. Active growth started in 2020. By now, the quotes have grown by 400% and are trading near an all-time high.
One more US company among the largest lithium suppliers is called Livent Corporation (NYSE: LTHM). Livent Corporation mines, produces, and sells highly efficient lithium compounds used in batteries, metallurgy, aerocosmic industry, and pharma. Plants of the company are situated in the US, Argentina, India, China, and England.
On 26 July we got to know that Livent Corporation had signed a long-term contract for supplying lithium hydroxide to General Motors. Like the shares of Albemarle Corporation in 2020, the shares of Livent Corporation started to grow abruptly. By now, they have grown by 520%.
Sociedad Quimica y Minera de Chile
As said above, the Top 5 list of countries with the largest lithium reserves features Chile. Hence, the Chilean Sociedad Quimica y Minera de Chile is also worth attention. Its shares are traded in NYSE under the ticker SQM.
Why Chile? In this country, lithium is also mined by foreign companies, Albemarle Corporation inclusive. In April, it became known that the Chilean authorities sued BHP Group Limited (NYSE: BHP), Antofagasta (LSE: ANTO), and Albemarle. They accuse the companies of harming the environment. In other words, the Chilean government may block the work of other companies on the national mines, simultaneously giving Sociedad Quimica y Minera de Chile the green light, so that the company will be able to increase production volumes and earnings.
The shares of the Chilean company have been growing since 2020 as well, rising by 580% by now. This is the most impressive growth among the issuers presented above.
The first ones to mention are political risks, i.e. limitations imposes on the business of foreign companies in certain countries, like in Chile. These situations will have a good influence on lithium prices, which means the price might grow after such events, yet the companies that get the limitations imposed on them will suffer a stock price decline. To avoid the risks entailed by investing in one company, investors might consider lithium ETFs, such as Global X Lithium & Battery Tech ETF (NYSE: LIT) or Amplify Lithium & Battery Technology ETF (BATT).
The second risk bases itself in active investments in lithium mining that might make the supply exceed the demand. In this case, lithium quotes will start declining, and companies that have invested in increasing production will fail their financial liabilities because their income will fall.
Brass, platinum, iron ore, steel have been having their prices fall recently. Lithium is the only metal that is now trading at its all-time highs. Electric car makers keep reporting growth of sales. For example, Li Auto (NASDAQ: LI), Nio (NYSE: NIO), XPeng (NYSE: XPEV) have just reported their sales grow between 21% and 43%. The Chinese regulator announced that might continue special programmes for electric cars until the end of 2022. All this will support the electric car market in China, and the global trend for green energy will heat up the growth of lithium prices.
The demand for lithium is likely to remain high over the next few years. This, in turn, will influence prices that will either stay at their all-time highs or grow. From such a scenario, lithium companies may definitely benefit.
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