Skip to main content

LITHIUM: Market Leader or Liar - Money and Investing | Australian Investment Education

LITHIUM: Market Leader or Liar? As the investment wildcard of the last 5 years. Lithium has been one of the fastest growing commodities in the world. With uses in battery and e-car technology, lithium sounds good on the surface – but deep down there’s a little more than what meets the eye. Here’s why:

Lithium as it stands right now

Something that a lot of people don’t know is that Australia is actually one of the worlds being producers of lithium. In a nearly $5B dollar industry. Lithium has experienced insatiable growth given its uses in battery and e-car technology; marketed as an eco-friendly commodity that is supposed to be good for the environment. In terms of historical performance. Host Andrew Baxter recommends overlaying a price chart of e-cars with lithium – to no surprise. We see a rapid increase in both values and an extremely close correlation.

The American traded global lithium ETF for example, LIT, is up somewhat 140% over the YTD. And up nearly 300% in the last 5 years. Looking more locally here in Australia, lithium-based battery producer. Volcun (ASX: VUL), has seen a 5,000% jump in its share price since inception. Yes, you read that correctly. And yes, lithium as it stands right now appears to be a market juggernaut. 

Lithium is set to skyrocket

According to the research conducted by our co-host, Mitch Olarenshaw. The price of lithium and lithium batteries is expected to skyrocket in the next decade. Specifically, lithium as a commodity is expect to grow at an annualized rate of 2% per annum – whereas more specifically, lithium batteries have an expected growth rate. Of a whopping 36% per annum through to 2030. Wow. As the demand for lithium looks to double in the next 4 years. All the signs are pointing in the right direction for an investor looking to gain exposure to this unique commodity.

Using our ‘litmus test of relevancy’, lithium certainly looks to become a bigger part of our world in the future rather than a lesser part. Looking at the European car market for example (given they are typically at the vanguard of automobile production). Lithium powered battery cars make up 20% of all vehicles sold in Germany and 80% of all sold in Sweden. This shows just how popular these batteries are becoming. 

The risks of lithium

If something sounds too good to be true, then it probably is. In the case of lithium. Yes, we have seen an insatiable amount of growth and a strong fundamental backing behind it. However, there are also underlying risks associated here as there is always more than what meets the eye. Interestingly enough, 93% of the world’s lithium is processed in China – a country who most of the world has some form of political or economic tension. Additionally, something that a lot of people don’t know is that the production of lithium batteries requires a mineral known as ‘cobalt’ to which two thirds of this valuable mineral is mined in The Republic of Congo.

Once again like China, Congo poses a massive political risk given their internal tensions – leaving the possibility of the tap being turned off by either country at any time. When a whole market’s livelihood and growth is dependent on two countries. Investors leave themselves wide open to both political and economic risk – not to mention the arduous balance between managing supply vs. demand.  

All that glistens isn’t always gold

When you dive a little deeper into how lithium is mine you will sure to find some shocking information. As host Andrew Baxter mentions, when lithium is mine and then roast – this creates around 15 tonnes of Carbon dioxide for every tonne of lithium produce. The only way around this is to actually get a reasonable duration. Out of the lithium batteries that are produced – only after a certain amount of time do they become ‘carbon neutral’.

Using a Tesla car as an example, this takes around 7 years for it to become carbon neutral as the benefits of using a lithium battery finally offsets the pollution created from its initial production. This may seem a little controversial, however, as a fundamental or caused-based investor, these are the key points you should take into account. Better alternate than carbon fuel? Yes, probably. However, keep in mind that all that glistens isn’t always gold.

How to gain exposure

Certainly, lithium looks to be lucrative from a trader’s perspective, so for anyone looking to gain exposure to this, there really are two ways that host Andrew Baxter recommends. The first is through an ETF (like LIT for example) as this can give you broad exposure with a much lower level of risk by virtue of diversification.

Alternatively, gaining exposure to specific lithium stocks may be the way to play if your appetite for risk is there. These are much more narrowed focus companies (meaning a greater potential upside). However, they are subject to more fluctuations in price. Stuck on where to go next? Reach out to Andrew’s team at Australian Investment Education for help.

 

 

 

 

Comments

Popular posts from this blog

Ensuring Your Legacy: The Importance of Estate Planning and Wealth Preservation

Introduction Estate planning and wealth preservation are vital components of financial management that extend far beyond the realm of the affluent. Regardless of one’s economic status, creating a comprehensive plan ensures the orderly distribution of assets and minimizes potential disputes among heirs. This article delves into the significance of estate planning and wealth preservation, exploring key strategies to safeguard and transfer wealth effectively. Understanding Estate Planning Estate planning is the process of organizing and managing one’s assets during their lifetime and determining their distribution after death. It involves a thorough examination of financial holdings, including real estate, investments, business interests, and personal belongings. The primary goals of estate planning are to minimize taxes, ensure a smooth transfer of assets, and provide for loved ones in accordance with the individual’s wishes. One essential component of estate ...

Why Investment News Will Help You Make More Confident Decisions - Australian Investment Education

  Many “would be” investors think the best way to make profitable trades is to get a trading platform, look at the charts and just give it a go. If only it were that easy… Over a thirty year professional trading career and having helped “rehab” thousands of investors, I have learned that there is a lot more to it than that! And that’s where Investment News comes in.

Navigating the Top 5 Market Trends in 2024 - Andrew Baxter

  1. Artificial Intelligence and Tech Stocks Artificial intelligence (AI) continues to dominate discussions in the financial markets . Tech stocks, particularly those involved in AI, have shown remarkable performance. The NASDAQ, driven by companies like Nvidia, has seen impressive gains, echoing the strong performance of 2023. However, this sector’s success also brings volatility. Overvaluation and shifting market sentiment could lead to sudden downturns. It’s crucial to monitor these stocks carefully and consider diversifying your portfolio to avoid overexposure to this volatile sector. 2. ESG Investing Environmental, Social, and Governance (ESG) investing has been a hot topic throughout 2024. However, the enthusiasm for ESG seems to be waning in the face of economic pressures. Countries like the UK have reconsidered their carbon-neutral goals due to economic constraints, and companies like Fortescue Metals have scaled back their green energy projects. While ESG remains important...