The cost of lithium has soared by 1,200% in the last year! Is it better to purchase or sell lithium stocks right now?
Over the past year, the price of lithium has skyrocketed in value. And many lithium stocks have as well. Unfortunately, as we don’t directly own any silvery-white metal miners, our portfolio hasn’t profited from this.
Has this worldwide mega-trend already begun, or have we missed the boat here?
Why you should purchase lithium stocks
Along with nickel and cobalt, lithium also known as “white gold,” is one of the main elements found in EV batteries. A lithium-ion battery pack uses about 8 kg of soft metal compared to a smartphone battery’s few grams.
According to McKinsey & Company, the demand for lithium carbonate is expected to increase from 500,000 tonnes in 2021 to 4 million tonnes in 2030. And it’s anticipated that batteries will be made with 90% of that lithium.
But the exponential rise in EV demand is putting a strain on the world’s lithium supplies. The material cannot be mined quickly enough worldwide. For lithium miners, this has led to unusually large profits.
The bull case is predicated on the notion that this fundamental lithium undersupply (and not a short- or mid-term imbalance).
Why you should not purchase lithium stocks
Chinese battery and EV producer BYD surpassed Tesla this year in terms of sales on a global scale. Stella Li, vice president of the company, has expressed her opinion that the current lithium price is “unreasonable.” As new mines start operating, she anticipates a surplus the next year.
By a wide margin, China has the largest EV market in the world. According to Rystad Energy, the nation also held 65% of the world’s processing and refining capacity for lithium in 2021.
However, less than 25% of the world’s resources are represented by the lithium reserves to that China has access. Due to this, Chinese miners have recently announced a flurry of acquisitions in Africa and South America.
The danger is that a massive lithium bubble has inflated by this point. If that’s the case, it might make new investors particularly vulnerable if the bubble were to suddenly implode.
In fact, Goldman Sachs recently forecasted that as additional supply enters the market, the price of lithium carbonate might decrease by 75% by 2024.
Best lithium stocks to purchase
The second-largest lithium producer in the world, the South American company Sociedad Qumica y Minera de Chile, has produced the most impressive results this year. To date, the stock has increased by 84%.
In Q3 2022, SQM generated $2.96 billion in sales. That is more than its whole revenue for 2021 ($2.86 billion) in only one quarter!
Albemarle is the biggest producer of lithium in the world. In collaboration with SQM, a significant portion of its lithium business is situated in the Salar de Atacama deposit in Chile.
Atlantic Lithium and European Metals Holdings, both listed in the UK, are two other smaller players.
Will we purchase lithium stocks?
We believe there are too many unknowns surrounding the price of lithium in the future for me to feel secure making an investment at this time. We have faith in the future demand for EVs, but we have less faith in what it means for the sky-high lithium markets of today.
Also read: Best UK Stocks You Should Buy