Lithium prices are skyrocketing, fueled by high demand for electric vehicles and a scarcity of supplies
Prices for lithium are climbing at their quickest rate in years, igniting a rush to secure supply and raising concerns regarding the long-term scarcity of a key component in rechargeable batteries which power everything from the electric vehicles to the smartphones. Benchmark Mineral Intelligence, which is a research organization and price source, published a lithium price index that doubled between May to November and is up 240 percent for the year. The indicator is at its highest point in five years of data.
Bets on continuing shortages are fuelling the rally. As Tesla Inc. as well as other automakers intensify sales of electric vehicles, demand is increasing. Meanwhile, supply has been hampered by a lack of new project investment and supply-chain bottlenecks as a result of the recent weak market. When it comes to extracting the silvery-white metal, producers frequently face environmental opposition and lengthy permission processes.
While there is an abundance of lithium on the planet, turning it into battery-grade compounds is a time-consuming and costly process. Prices are prone to large swings in both directions as speculators and corporate purchasers ride the wave of momentum. “It’s similar to being in a hot real-estate market,” noted Jon Evans, Chief Executive Officer of Lithium Americas Corp., a Nevada-based company that also has a stake in an Argentine project with a Chinese partner. “There’s a frantic scramble going on.”
Despite the fact that Lithium Americas hasn’t produced any lithium, its stock has a market worth of almost $4 billion following a recent price increase. The rally has fueled concerns that battery producers and automakers would not be able to meet the demand for electric vehicles. Many businesses are also dealing with rising costs for the other raw materials and critical components like computer chips.
Despite the fact that commodities account for a small portion of total vehicle costs, BloombergNEF believes they may contribute to growing average prices for the lithium-ion battery packs. That was going to be the first time in at least a decade that such an increase has occurred. Electric vehicles have become more viable with gasoline-powered cars as battery costs have fallen.
High lithium costs are a benefit for the small group of businesses that control worldwide supply and have recently announced strong sales, including Albemarle Corp.
Many others are rushing to cash in on the euphoria, causing stock prices to rise in lockstep with Tesla and electric vehicle companies. This year, the Global X Lithium & Battery Tech ETF has increased by more than 40%, while shares of some lithium producers have increased by 70% or more.
Since there is a lack of active futures market just like there is for other widely traded commodities like oil, investors must rely on shares of lithium firms to speculate on pricing. The majority of lithium originates from Australia and Chile. A salty brine pumped from the ground and spodumene, which is a mineral found in hard rocks, are the two main sources. Chemical techniques are employed to create battery-grade lithium compounds after extraction.
