In this era of global environment sustainability, lithium has become one of the hottest commodities. Lately, the price of this metal has been rising at its fastest pace. On Friday, lithium carbonate prices in China touched an all-time high of 500,500 yuan or $71,315 a ton. Per the Trading Economics website, prices have shot up more than 220% year on year. According to Benchmark Mineral Intelligence data, the index of lithium prices has surged more than 120% year to date.
High lithium prices are a boon for lithium producers. With the prices set to remain on an upward trajectory, the time is ripe for investors to power their portfolios with lithium stocks like
Albemarle Corp ( ALB Quick Quote ALB - Free Report) , Livent Corp. ( LTHM Quick Quote LTHM - Free Report) and Sociedad Química y Minera de Chile S.A. ( SQM Quick Quote SQM - Free Report) . What’s Driving the Run-Up?
The record-smashing lithium prices can be attributed to the simple economics of demand-supply mismatch. As the world moves toward cleaner energy amid heightening climate concerns, there is an accelerated adoption of electric vehicles (EVs). With batteries serving as the secret sauce for EVs and lithium being the most important metal in the EV battery, the demand for lithium is skyrocketing. Meanwhile, the supply is insufficient to keep pace with the growing demand. The shortage of critical components and disrupted supply chains —byproducts of the COVID-19 pandemic that only got worsened by the Russia-Ukraine war— is leading to a shortfall in lithium production. The scarcity of supply amid the raging demand is causing the prices of lithium to go through the roof.
Of late, what worsened the lithium supply was a power crunch in the Sichuan province last month. Notably, the Sichuan province accounts for 20% of China’s lithium production. The power crisis in the province due to record-setting heat waves resulted in electricity cuts for two weeks, prompting many lithium producers to suspend operations. This further impeded the supply of lithium in an already tight market, resulting in the latest rally in prices.
Prices to Rule at Elevated Levels
Lithium prices will remain turbocharged at least for the rest of the year amid scant supply and a continued EV boom. Additionally, there are concerns if China’s energy crisis could return this winter as demand for heating will increase. Per Rystad Energy, another power crisis could hit lithium operations again, causing prices to stay firm around this level through 2022.
One of the leading lithium producers, Sociedad Química also forecasts a “very tight lithium market” ahead and doesn’t expect the prices to cool off anytime soon. In fact, SQM anticipates lithium prices in the third quarter of 2022 to be higher than in the second quarter. It further predicts fourth-quarter prices to remain on par with third-quarter levels.
Rosy Prospects for EV & Lithium Market
More and more cars are getting electrified amid the growing climate concerns. In fact, green vehicles continue to buck the downward trend of new car sales. Per Canalys, around 4.2 million new energy vehicles (including battery-powered and plugin hybrids) were sold worldwide in the first half of 2022, marking 63% year-over-year growth. During the period, 2.4 million EVs were sold in China. China Passenger Car Association predicts EV sales in the world’s largest car market to double to 6 million units in 2022. In the United States, 414,000 units of EVs were sold in the first half of 2022, with EV share accounting for 6% of new car sales. This marks 62% year-over-year growth from the corresponding period of 2021.
Demand for EVs is set to soar in the United States with the Inflation Reduction Act passed last month. The bill extends tax breaks for new EV purchases and seeks to transform the U.S. auto industry with incentives that would induce automakers to accelerate the production of zero-emission vehicles, further supercharging the prospects of the sizzling EV industry.
Per S&P Global Platts Analytics, global EV sales are expected to rise to 26.8 million units by the decade's end. To put this into perspective, sales of green cars totaled 6.6 million units in 2021. Fortune Business Insights estimated that the global EV market size is expected to grow from $287.4 billion in 2021 to $1.32 trillion in 2028.
The rising EV penetration will have a trickle-down effect on the supply chain, making lithium more attractive than ever. Importantly, more than half of all the lithium produced is deployed in rechargeable batteries. The lithium space gains the maximum attention from EV batteries. This would only continue to rise in the coming years amid the soaring popularity of green cars and further dwarf the usage of the metal for traditional industrial purposes, including ceramics, polymers and glass ceramics.
Per Statista, the global lithium demand is forecast to exceed 2 million metric tons of lithium carbonate equivalent by 2030, majorly driven by the consumption in EV batteries. Per Fortune Business Insights, the global lithium-ion battery market size is expected to reach $193.13 billion by 2028 and register a revenue CAGR of 23.3% during the 2021-2028 time period. With lithium being the key to a low-carbon future, rising demand for this metal coupled with production constraints and supply chain challenges will help maintain the bull run in its prices.
3 Stocks to Ride the Lithium Boom Albemarle: Charlotte-based Albemarle is one of the leading producers of lithium, with battery-grade lithium-producing plants in Australia, China, Chile and the United States. The company’s lithium unit accounts for the highest percentage of overall revenues and profits. ALB, thus, remains laser-focused on the expansion of its lithium footprint.
Albemarle is investing in high-return projects to drive productivity and is well placed to gain from the long-term growth of the battery-grade lithium market. The Kemerton plant in Australia and La Negra III/IV expansion in Chile is boosting prospects. In the United States, expansion projects at Silver Peak are progressing ahead of schedule. The acquisition of the Qinzhou plant in China will also bolster the growth of conversion capacity and drive lithium volumes.
As of Jun 30, Albemarle had liquidity of approximately $2.6 billion. The company is also a dividend aristocrat, having raised its annual dividend for 27 straight years. The Zacks Consensus Estimate for Albemarle’s 2022 earnings implies year-over-year growth of 425.2%. The stock currently sports a Zacks Rank #1 (Strong Buy).
Livent: Philadelphia-based Livent is the largest vertically integrated pure-play producer of low-cost lithium, with operational sites in the United States, England, India, China and Argentina. Livent has been extracting Lithium Brine at Salar del Hombre Muerto in Argentina for more than 20 years. It is one of the lowest-cost resources for lithium carbonate, providing the company with a competitive edge.
LTHM is on track with all its capacity expansion programs. The first 10,000 metric tons of lithium carbonate expansion in Argentina is scheduled to be completed by the year-end. The second 10,000 metric tons of lithium carbonate expansion is anticipated to be concluded by 2023-end. Livent remains on track with a 5,000 metric ton hydroxide addition in Bessemer City by the end of the third quarter of 2022. The company is set to add 15,000 metric tons of lithium hydroxide capacity at a new location in China by the end of next year. Québec-based Nemaska Lithium project is likely to commence in 2025 and will aid the top-line growth of Livent.
LTHM expects strong demand and high lithium pricing to buoy its prospects through 2022. The company envisions revenues in the band of $800-$860 million this year, implying a year-over-year uptick of 97% at the midpoint of the guided range. Adjusted EBITDA is estimated at $325-375 million, suggesting significant growth from $70 million recorded in 2021. The consensus mark for LTHM’s 2022 earnings implies year-over-year growth of 666.7%. The stock currently sports a Zacks Rank #1.
Sociedad Química produces and distributes lithium and its derivatives. SQM offers lithium carbonates for various applications that include electrochemical materials for batteries, frits for the ceramic and enamel industries, heat-resistant glass, air conditioning chemicals, continuous casting powder for steel extrusion, primary aluminum smelting process, pharmaceuticals.
Sociedad Química sells lithium derivatives and is an ingredient in the manufacturing of gunpowder. Further, SQM supplies lithium hydroxide to the lubricating grease industry as well as cathodes for batteries.
This Zacks Rank #2 (Buy) company has an expected earnings growth rate of more than 530.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 35 cents over the past 30 days. SQM has a current dividend yield of 8.88%.
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