How to Invest in Lithium | Easy Step-by-Step Guide

How to Invest in Lithium Ion Batteries
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Lithium is becoming increasingly common as a source of investment. Especially when Lithium-ion batteries power everything from cell phones to laptops to electric cars.

Lithium has had a bit of a breakthrough in recent years, thanks to Tesla and other companies for their preferred patterns of raising environmental standards and pushing toward more energy-efficient transportation.

Despite the fact that it is not a precious metal, businesses have rushed to mine it because it has become a vital component in a rapidly expanding market.

News of Elon Musk and Tesla’s (NASDAQ:TSLA) gigafactories, as well as emerging lithium-ion battery megafactories from other firms, continues to attract companies and investors.

However, lithium and the lithium market are more than just electric car batteries.

Before jumping into the lithium market, new investors can familiarize themselves with a few basic facts about lithium metal.

What is Lithium?

Lithium is a key component in the manufacture of rechargeable batteries, which is one of its many industrial applications.

These batteries are used to power portable devices like smartphones and tablets, helping to meet the growing demand for “energy on the go” products.

Lithium is also used in the development of batteries for electric vehicles such as cars and scooters, which has seen significant growth in demand since its inception.

However, lithium has a variety of other applications, including the manufacture of ceramics and glass.

Lithium’s widespread use is nothing new, but as demand for the metal rises, the spotlight has been shining on it.

Is Lithium in High Demand?

Lithium, like other metals, is mined from the Earth’s surface. Because of its unusual physical properties, it is a very light metal that can be used for a variety of applications.

The use of lithium in batteries for electric devices such as smartphones and laptops accounts for a greater demand of lithium production.

However, increased demand in the electric vehicle industry has boosted lithium’s popularity.

Although lithium supply is abundant in the short term, SFA (Oxford), a firm that provides market intelligence for battery raw materials, believes that demand will rise primarily due to electric vehicles and because the future market outlook is bright.

“We see a balanced demand for lithium by 2025 in our base and active EV (electric vehicle) scenarios, given the rise in lithium supply over the next few years,” the report says.

On the other hand, Tesla (TSLA) announced plans to mine lithium as a way to lower the cost of producing the lithium-ion batteries used in its electric vehicles during its battery day in September, lowering the overall cost of the vehicle.

China has also become the dominant consumer demand for lithium. The country’s status is likely to last for some time, as government policies and programs aimed at dramatically reducing emissions have promoted the use of environmentally friendly activities such as driving electric or hybrid vehicles.

Lithium will be in high demand as a result of the revolutionary drive for electric vehicles.

According to SFA (Oxford), that lithium demand, fueled in part by its use in electric vehicles, would lead to the opening of new lithium mines and production facilities in more countries.

“Electric vehicle batteries are expected to dominate end-use,” the company states, “so lithium is likely to play an increasingly important role in energy storage solutions.”

What are Lithium Stocks?

The shares of companies that mine or process lithium are known as lithium stocks. Traders are unable to invest in lithium as a commodity, unlike other precious metals such as gold and palladium.

Investing in publicly traded lithium firms, on the other hand, will provide them with publicity.

Lithium is primarily obtained from spodumene mines or brine deposits.

Australia has the most spodumene mines, despite being one of the world’s largest producers of lithium. The majority of brine processing takes place in South America.

Lithium carbonate and lithium hydroxide are the two main forms of lithium manufactured by companies.

As demand increases, developers are concentrating on making lighter, quicker products while also being worried about the types of lithium used in their manufacturing.

The demand for lithium has risen dramatically in an environment where renewable energy is increasingly advancing and large corporations such as Tesla rely on lithium as a key component of their goods.

Whereas some traders are concerned about future price instability, others see investing in lithium as a great way to profit from a market that has seen a rapid rise in demand.

Traders may buy lithium mining stocks, which are shares in companies that mine lithium, or lithium battery stocks, which are shares in companies that produce batteries.

It’s also possible to buy and sell shares in companies involved in both.

Why are Lithium Stocks Down?

Lithium batteries are now produced from a variety of different materials and chemical compounds. And the structure of these groups varies depending on the technologies used.

It’s the world’s lightest metal and a central component of today’s rechargeable batteries. And, of course, as the market for batteries increases, so will the demand for lithium.

It could be a blessing to lithium investors due to the soaring demand for electric cars.

According to UBS analysts, the lithium market will expand 8X by 2030.

The problem is, where will all this lithium come from?

Lithium is a common element, not a rare metal. There’s plenty of it, but it’s hidden under the earth’s surface.

To extract it, you’ll need mines and, in some cases, large-scale operations, which can take years to investigate and set up.

Then there’s the clincher.

Lithium stock rates have crashed by 60-70 percent since 2018, reaching new lows.

Now, miners are forced to cut down on operations and halt discovery of new mines as a result of the drawdown.

And now there are just a few projects producing lithium. And miners will not dig up new mines as long as lithium prices remain low.

As a result, UBS analysts believe that lithium prices would rise by 20% to prevent a long-term shortage.

As can be shown, by 2025, rising lithium demand would almost certainly outstrip supply from all established lithium ventures.

“Based on the current knowledge of known ventures, there is insufficient supply to satisfy this demand forecast.

Despite this, the market sees an oversupply of lithium that outpaces demand, lowering lithium producers’ prices.

Is Lithium a Good Investment?

Lithium demand is increasing as the electric vehicle market grows.

Lithium stocks, on the other hand, are drowning in a flood of new supply expected to arrive on the market, rather than riding the surge of demand for the metal.

According to the Financial Times, Morgan Stanley downgraded Albemarle Corp. (ALB) and Sociedad Qumica y Minera de Chile S.A. (SQM), both producers of the main metal used in electric car batteries, from “underweight” to “equal weight” on Monday.

With the price of lithium doubling in the last two years due to expectations that electric cars will take over the auto industry, shares of both companies have soared. Alongside Albemarle, up 137 percent and SQM up 257 percent between the beginning of 2016 and the end of 2017.

However, year to date (YTD), both stocks have fallen as fears rise that lithium prices will fall precipitously in the coming years.

Albemarle has lost 25% of its value since the beginning of the year, while SQM has lost 21%, despite the fact that demand for the metal is surging.

Electric carmakers like Tesla Inc. (TSLA), General Motors Co. (GM), and BMW, as well as smartphone makers like Apple Inc. (AAPL) and Samsung, are driving much of this demand.

Even so, the onslaught of supply expected to hit the market in the coming years would not be able to keep up with rising demand.

How to Invest in Lithium in 2021

Lithium stocks and exchange-traded funds are good options for long-term investors.

Alternatively, they can use spread betting or CFDs to speculate on the underlying price fluctuations of lithium stocks.

Spread betting is a tax-advantaged method of speculating on the price changes of underlying assets without having to take control.

CFDs enable traders to buy or sell several units of an instrument, with the difference in price being exchanged at the contract’s end.

However, stocks have a higher concentration of risk, while ETFs have a broader range of exposure and diversification.

This is to suggest, if you’re not comfortable monitoring individual lithium stocks, a lithium-based ETF could be a good option.

Holding lithium stocks may be a good alternative investment for investors who are more familiar with the lithium industry and have a good sense of strong lithium companies.

However, purchasing shares of companies in the lithium industry and holding them for a long time in the hopes of making a profit is the conventional way of investing in lithium.

To invest in lithium this 2021, you should stick to the following step:

  • Open a trading account
  • Research to find the right stocks for you
  • Determine your strategy
  • Manage your risk
  • Determine your position size and place the trade
  • Monitor your position and close your trade

What are the Lithium Companies to Invest in?

The following is a list of lithium assets to be aware of when looking into companies that produce, refine, or mine the commodity:

#1. Albemarle (ALB )

Albemarle (ALB ) is a US-based corporation that is one of the main suppliers of lithium for electric car batteries.

According to a US Securities and Exchange Commission filing, Albemarle Corp. (ALB), the world’s leading lithium producer based in Charlotte, North Carolina, has been designated as a “preferred global lithium partner” for its ability to scale, regional access to the global lithium market, and low-cost operating capital.

It supplies both carbonate and hydroxide lithium, as it obtains lithium from its brine and rock mining operations in many countries.

The company manufactures over 100 lithium-based goods for a variety of industries in addition to being extremely competitive in the electric car industry.

Albermarle will benefit from the achievements of its bromine segment to shield itself from any large possible losses from market fluctuations.

#2. Sociedad Química y Minera de Chile (SQM​​)

Sociedad Qumica y Minera de Chile, a Chilean chemical company, is one of the world’s largest lithium producers.

It is a major lithium producer, which has some of the world’s largest lithium reserves.

The business, which was established in the late 1960s, benefits from the fact that its home country has one of the world’s largest lithium reserves.

SQM has been extracting lithium for over two decades and is constantly developing the process. This year, SQM has outperformed the market, with the stock up more than 54%.

Due to the rapidly increasing demand for lithium in the electric vehicle industry, Sociedad Qumica y Minera de Chile expanded its lithium output to include both carbonate and hydroxide, which it manufactures in the Salar de Atacama in Northern Chile.

The company also profits from its potassium nitrate and iodine processing.

#3. Livent Corp (LTHM​​)

Livent Corp is a lithium corporation based in the United States.

It owns and operates a mine in Argentina, which is critical to the company’s performance in terms of lithium hydroxide output and export.

Livent manufactures other forms of lithium that can be used in pharmaceutical products and non-rechargeable batteries in addition to providing lithium for products with special performance requirements.

One of Tesla’s key lithium suppliers is this business.

Recently, Livent Corp. (LTHM) announced in its most recent third-quarter 2020 earnings results that it expects to supply higher volumes of lithium to Tesla in 2020, has expanded its lithium hydroxide supply agreement with Tesla, and is in talks for a long-term relationship with Tesla.

Following the launch, LTHM stock soared, and it is now up about 50% year to date. Lithium volumes are expected to increase in the fourth quarter, according to the company.

In addition, Livent is a part owner of lithium mining company Nemaska Lithium, which owns and operates a large mine in Canada, with the aim of expanding its presence in Europe and America.

#4. Orocobre (OROCF​​)

Orocobre Limited is a mineral resources company based in Australia.

The company is headquartered in Brisbane and focuses on lithium and other mineral mining activities in Argentina.

Currently, Orocobre is collaborating with Toyota Tsusho to expand its Argentinian-based flagship plant, the Olaroz Lithium Facility.

This facility’s lithium carbonate capacity has risen to over 17,000 tonnes per year.

The two companies are also planning to build a plant in Naraha, Japan, to increase their lithium hydroxide output.

#5. Galaxy Resources (GALXF​​)

Galaxy Resources Limited, an Australian mining group, operates lithium mines in Australia, Argentina, and Canada.

Mineral mining and refining are the company’s core operations, with lithium carbonate production being its main priority.

The Mt Cattlin spodumene mine in Western Australia is operated by Galaxy Resources’ Australian division, which merged with its partner, General Mining Corporation, in 2016.

The Sal de Vida lithium brine plant, which is located in a region that generates more than 60% of the global lithium supply, is operated by the Argentinian segment.

It is one of the best to invest in.

#6. Tianqi Lithium

Tianqi Lithium is the largest and lowest-cost producer of lithium materials in China and has developed resources in Australia and Chile.

Other industry participants believe China’s domestic resources are of lower quality, are located far from downstream production sites, or both.

As a result, spodumene feedstock from Australia is used to manufacture the majority of Chinese processed lithium products such as lithium carbonate, hydroxide, and downstream materials.

Spodumene is a mineral that is used to make lithium.

In December 2018, Tianqi made a $4.1 billion investment in SQM, acquiring 25% of the company.

Alternative Way of Investing in Lithium

Trading lithium ETFs is a different way to invest in lithium.

ETFs (exchange-traded funds) are investment funds that are made up of a variety of assets, such as several shares of lithium-based companies in this case.

ETFs give you access to the lithium market by giving you exposure to underlying share prices, as well as the opportunity to profit from it.

Many people consider ETFs to be low-risk investments since the risk is distributed over multiple securities for the cost of just one transaction.

Keep in mind, however, that leveraged ETFs are complicated financial instruments with substantial risks. Certain leveraged ETFs are only recommended for seasoned investors.

The following ETFs are available for trading:

#1. The Global X Lithium & Battery Tech ETF (LIT)

With a market valuation of about $50 per share, the Global X Lithium & Battery Tech ETF (LIT) offers a portfolio of more than 40 holdings.

Albemarle, along with other companies involved in lithium mining and battery manufacturing, is one of the fund’s biggest holdings, with the bulk of assets coming from China.

This ETF could be a good way for investors to get a wide view of the lithium market.

Conclusion

Lithium is a desirable product, according to market participants, due to its wide range of applications and expected demand from electric vehicles.

However, since you can’t sell the product directly, there are a few layers of analysis to understand its market value.

Investing in lithium will provide buying opportunities if it fits into your long-term investing strategy and does not conflict with your risk tolerance.

References

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