One of the best performing investments so far this year isn’t on the stock market. Nor will you find it in crypto or tech markets. Although it is a commodity, it’s actually a surprisingly tricky asset to invest in. I’m talking about lithium, a highly in-demand battery metal that’s seen its price steadily rise thanks to the growing demand for electric vehicles around the world. Since the start of 2021, prices have skyrocketed by around 68%, making lithium one of the best performing commodities so far this year.
Prices for lithium carbonate are sitting at around $11,250 per metric ton, almost a 70% increase from early January. It’s a significant turnaround from just a couple of years ago, where companies were investing in mines left and right. As a result, this created a glut of lithium which saw prices tumble. Now it seems like we’re having the opposite problem, as lithium supplies aren’t catching up with pent-up demand in countries like China, where EV adoption is skyrocketing.
Analysts are now expecting that global lithium supplies will remain largely tapped out. Even if new mines are opened in the coming months and years, it will take years before they are fully operational, let alone regulatory clearances. Even then, any new output likely won’t be enough to keep up with the expected exponential demand increase in EVs around the world.
“You will find there is a ‘sold out’ sign on every operating mine at the moment. There will be some bad moments in the coming years where there will be a shortage of lithium production,” said Savannah Resources (LON: SAV) CEO David Archer in a Wall Street Journal. “The whole dynamic has completely changed,” adding that he doesn’t expect things to change anytime soon.
China, being the largest EV market on the planet, is leading the way in terms of demand for lithium. January 2021 sales of EVs were almost 240% higher than January 2020. That is in no small part due to the Chinese government’s stance on embracing more environmental policies. It’s no surprise that most EV manufacturers are either based out of China or have set up factories and retailers in China itself, just like Tesla (NASDAQ: TSLA) has.
The global lithium-ion battery market is expected to grow to around $46 billion by 2026, compared to the measly $4 billion reported in 2020. While lithium prices have been skyrocketing as a result of this demand, it actually is a little challenging to invest directly in the battery metal.
For one, there aren’t really any lithium futures out there, except for the London Metals Exchange. As such, the best bet for investors is to buy stock in companies that operate lithium mines directly.
The main countries that produce lithium are Australia, followed by Chile and China, which are the largest producers, with the top lithium stocks usually operating mines in these areas. In contrast, there is almost no lithium production in areas like Western Europe, with Savannah Resources trying to start up the first lithium mine in that area. U.S. lithium production also isn’t noticeable either.