The 2016 Lithium Boom – We're Just Getting Started
I can't think of any commodity that's had a better 2016 than lithium.
Just nine months ago it was selling for $5,000 per metric ton. Now it's at $8,500 and could make $10,000 by year end.
So while other commodities like gold and oil get all the glory lithium is really the one getting it done.
Lithium is used in a wide variety of products, from ceramics to rooftop solar cells. However, its biggest use is in electric car batteries.
That's what's got the metal popping right now.
The demand for electric cars, and for bigger, longer-lasting batteries, is soaring.
Electric car sales jumped 42% worldwide in the first quarter of 2016, hitting new highs in each of the first four months of the year.
This trend will continue. As their range increases and their prices decline, electric cars will supplant those powered by gas.
It won't happen overnight, but it will happen.
By 2040, 35% of light vehicles sold will be electric, generating a battery market worth a projected $250 billion, according to Bloomberg.
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This increase in electric car sales has directly corresponded to an increase in lithium demand.
Macquarie estimates global demand in 2016 will be about 184,500 tons, rising to more than 260,000 tons in 2020. Metals and minerals consultancy Roskill Information Services has a similar estimate, pegging its base scenario for lithium consumption at 290,000 tons in 2020. However that figure rises to a whopping 420,000 tons in its "optimistic" scenario.
In any case, 2020 supply figures to be less than 238,000 tons. So the shortfall here is apparent.
As Nick Hodge noted earlier this week, in the next 10 years or so, the world will need some three to five times more lithium than was produced in 2015.
This increase in demand, and the projected shortfall in supplies, is what's lit a fire under lithium.
Prices are up 43% so far this year.
Benchmark "battery grade" lithium carbonate reached $8,500 per metric ton in June, and analysts expect prices to reach $10,000 before the year ends. Compare that to just nine months ago when it was selling for $5,000 to $6,000 per ton.
Again, this trend is likely to continue as industry players are struggling to expand their lithium output and gain access to new material.
And that means more big gains for producers.
One of the big problems with lithium is that its production is highly concentrated.
Some 86% of production comes from just four large companies:
- Albemarle (NYSE: ALB)
- Chemical & Mining Co. of Chile (NYSE: SQM)
- FMC Corp (NYSE: FMC)
- Talison Lithium (a JV by Chengdu Tianqi Industry Group and Albemarle)
Obviously, these stocks have done rather well this year.
Albemarle is up 47%, SQM is up almost 30%, and FMC is up 24%.
Many Australian miners are benefiting as well, because electric car demand in China is absolutely booming. Australia is the world's top lithium producer and home to the world's two biggest lithium mines.
Galaxy Resources (ASX: GXY), which is in the middle of a friendly merger with General Mining (ASX: GMM), saw its share price rise from less than A$0.01 a year ago to A$0.45 in the final week of July. General Mining went from A$0.04 to A$0.74.
Once their merger is completed, Galaxy-General will become the second-biggest listed lithium stock in Australia after Orocobre (OTC: OROCF).
Pilbara Minerals (ASX: PLS) is developing the Pilgangoora Project in the iron ore-rich Pilbara region of Western Australia. It just signed an offtake agreement with Chinese firm General Lithium and plans to start mining next year.
Pilbara chief executive Ken Brinsden says potential Chinese customers are already building new processing operations, noting that most westerners aren't aware that many Chinese electric car makers there are buttressing demand.
He says his company will increase focus on new lithium developers and choose low-cost operations with proximity to ports. Meanwhile, Pilbara's competitor Neometals (ASX: NMT) is looking to commercialize its lithium resources at Mount Marion in the goldfields region of Western Australia. It will launch a pilot plant in the fiscal year of June 30, 2017.
And Rio Tinto (NYSE: RIO) said it was undertaking a pre-feasibility study on the Jadar lithium deposit in Serbia.
In all, Australia will supply 64,000 tons of lithium this year, putting it ahead of Chile (62,000 tons) and Argentina (30,000 tons).
Finally, if you really want to profit from the lithium boom, our own Nick Hodge recently released a HUGE report on the subject detailing the least known, and best prospective lithium investments.
He's been covering this since before it was a trend. So he knows what he's talking about. Check out his report and stock picks here.
Jason Simpkins is a seven-year veteran of the financial publishing industry, where he's served as a reporter, analyst, investment strategist and prognosticator. He's written more than 1,000 articles pertaining to personal finance and macroeconomics. Simpkins also served as the chief investment analyst for a trading service that focused exclusively on high-flying energy stocks. For more on Jason, check out his editor's page.