January 15th, 2022
Lithium Runs Hot in 2022
Dear Retail Investor,
Commodities had a stellar year in 2021.
Whether it was fossil fuels, coffee, oil, copper or quartz, last year marked a decidedly bullish turn for several key commodities.
Gradual economic recovery, combined with an ongoing supply-side hangover from the pandemic, pushed prices up.
Fossil fuels including propane, heating oil, coal, ethanol, and gasoline surprisingly ended up being some of the strongest performers in 2021, thanks to OPEC cuts and the unprededented pandemic-induced lows of 2020. Oil prices this week hit a two-month high, with analysts predicting prices will continue to rise in 2022 as demand outstrips supply.
But the best performing commodity in 2021 by far was lithium—up 486% according to Trading Economics – a trend that looks set to continue into 2022.
Why the surge?
A couple of reasons.
First, the green technology movement and its resulting demand for lithium-ion batteries picked up considerable steam in 2021, with increasing numbers of EVs hitting the road and in production.
Simply go outside. Teslas are everywhere, and it seems every company is now racing to get on board.
Even Ford has switched America’s bestselling vehicle, the F-150, to all electric. And they recently announced plans to double production of the electric truck, noting considerable demand.
So it wasn’t surprising that global demand for lithium exceeded supply for the first time last year.
While this was happening, ongoing issues on the supply side put further pressure on demand.
Many lithium projects have found themselves mired in red tape, due to environmental concerns. We saw this with Rio Tinto, whose ambitious plan to develop lithium mines in Serbia has stalled due to public backlash.
Gabriel Boric, Chile’s new President, included a pitch in his election platform to create a massive, nationalized lithium miner to tap into the country’s rich reserves.
Whether this happens is yet to be seen, as so many election promises are, but the intention says a lot. Mainly, that private investment is about to get caught up in more regulation.
These two issues reinforce the fact that it now takes a very large effort to get lithium mines built, and this means that supply is going to struggle to keep up with demand.
2022 and beyond
A rational investor would think that, after such a meteoric rise, we are surely in for a cool-off this year (or at least a breather).
While that has happened with some lithium stocks, it does not seem to be the case for lihium prices, and the forces at play show that we may only be in the beginning phases of a massive, extended run.
Lithium prices have stayed strong, regularly hitting new highs, and the supply side continues to face headwinds.
The transition to a green, low-carbon economy is also picking up steam, and with it the demand for batteries.
The stats are starting to roll in.
As Trading Economics notes, “[EV] deliveries to China are expected to double in 2022 to over 5 million sales.”
Looking further out, the International Energy Agency states that if we manage to meet the Paris Agreement goals, lithium supply will need to grow 40 times by 2040.
S&P Global sees the lithium market remaining tight, breaking new highs.
And many are questioning how Tesla’s goal to make 20 million vehicles by 2030 will happen, as industry projections show 80% of the lithium supply in 2030 would be taken up by Tesla alone.
Tesla’s competitors would have a lot to say about that.
The general conclusion is that lithium is facing what many investment experts call a “perpetual deficit.”
Riding the lithium wave
What’s challenging for car and renewable energy producers may just prove to be a boon for investors.
The fundamentals to support long-term growth in the lithium market are solid, unless you believe we are going to suddenly pivot away from green technologies.
With that in mind, there are a number of ways to invest in lithium. Of course, many of these are still riding somewhat high on last year’s success, but deals are out there.
Lithium Americas Corp (TSX: LAC) is the largest lithium mining company headquartered in Canada and is a prominent name in the mining sector. The company is quickly developing the Cauchari-Olaroz lithium brine project, which is the third-largest lithium brine deposit in the world, in Argentina. They own the Thacker Pass Lithium Project, which is set to become the largest lithium producer in the US. And they are also partnered with Ganfeng lithium, the leading manufacturer of lithium products in China.
The company’s share price is trading at around CAD $39 at the time of writing (Jan 12th), a discount from its $52+ high in 2021.
Scaling down, Standard Lithium (TSX.V: SLI) is a cashed-up exploration and development company that is working on carbon capture technology, in addition to using its cutting-edge technology to unlock the globally significant Smackover resource in Arkansas, as well as the Mojave Project in California. Their stock is also currently off more than 30% from its 2021 high.
If you’re more interested in investing in lithium batteries, the Global X Lithium & Battery Tech ETF (LIT) invests in the full lithium cycle, from mining and refining the metal, through battery production.
The Global X Autonomous & Electric Vehicles ETF (DRIV) seeks to invest in companies involved in the development of autonomous vehicle technology, electric vehicles (“EVs”), and EV components and materials.
It’s all about context
Lithium is, currently, essential in developing the battery technology needed to power the low-carbon future.
We say currently as we cannot say with certainty what metals and minerals will win out as the main ingredients in future battery and storage technologies.
There has been a fair amount of talk about lithium-ion alternatives, incuding sodium-ion, zinc-ion, nickel hydride, nickel-hydrogen, iron-air—and more.
Proponents of these alternatives point to some key pitfalls with lithium, including its supply-constrained market. Ironically, one of the main things buoying lithium prices could also be its undoing . . .
There are also a fair amount of accounts of exploding lithium-ion batteries, as lithium is highly reactive and flammable.
Teslas randomly igniting and burning down houses in the night, large lithium-ion batteries burning for days at plants—not good.
However, these challenges aside, many experts seem to agree that alternative batteries will complement lithium-ion batteries, not replace them.
Lithium batteries are by far the most popular battery storage option today, controlling more than 90% of the global grid battery storage market, thanks to their high energy density and lightweight characteristics. And new innovations, including replacing graphite with silicon to increase power capacity, will make lithium-ion batteries even more competitive.
Projections don’t see demand for lithium letting up any time soon. The silvery-white metal has not only proved to be one of the essential ingredients for the green future, but has also captured the attention of the masses.
2022 has had a rocky start, but unless we pump the brakes on switching over to cleaner, greener technologies, lithium will remain a solid investment.
-Dear Retail Investors Editorial Team
Subscribe to our Newsletter
Get exclusive insights on investment opportunities & stay up to date on how to profit in the small-cap market
There’s a great product called Life Oral Wound Cleanser. I used it to help heal a nasty sore in my …
At this point, you’ve likely heard the term “NFT” thrown around enough to have a vague idea of what they …
Commodities had a stellar year in 2021. Whether it was fossil fuels, coffee, oil, copper or quartz, last year marked …
Subscribe to Our Newsletter
Comments are closed.