In this era of global environmental 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 hit a record high of 500,500 yuan or $71,315 per ton. According to the Trading Economics website, prices are up more than 220% year over year. According to data from Benchmark Mineral Intelligence, the lithium price index has jumped more than 120% since the start of the year.
High lithium prices are a boon for lithium producers. With prices set to remain on an upward trajectory, now is the time for investors to fuel their portfolios with lithium stocks like Albemarle Corp (ALB – free report), Livent Corp. (LTHM – free report) and Sociedad Chemical and Minera de Chile SA (M² – free report).
What drives the race?
The record lithium prices can be attributed to the simple economics of the mismatch between supply and demand. As the world moves towards cleaner energy amid growing climate concerns, the adoption of electric vehicles (EVs) is accelerating. With batteries serving as a secret sauce for EVs and lithium being the most important metal in EV battery, the demand for lithium is skyrocketing. Meanwhile, supply is insufficient to keep pace with growing demand. Shortages of critical components and disrupted supply chains — by-products of the COVID-19 pandemic that only worsened with the Russian-Ukrainian war — are driving lithium production down. Scarcity of supply amid raging demand is sending lithium prices soaring.
What has worsened the lithium supply of late was a power crisis in Sichuan province last month. In particular, the province of Sichuan accounts for 20% of Chinese lithium production. The electricity crisis in the province due to record heat waves led to power outages for two weeks, prompting many lithium producers to suspend operations. This has further hampered lithium supply in an already tight market, leading to the latest price hike.
Price to reign at high levels
Lithium prices will remain supercharged at least for the rest of the year amid tight supply and a continued boom in electric vehicles. In addition, there are fears that the Chinese energy crisis will return this winter, as the demand for heating will increase. According to Rystad Energy, another energy crisis could hit lithium operations again, causing prices to remain around this level until 2022.
Leading lithium producer Sociedad Química also forecasts a “very tight lithium market” and does not expect prices to drop anytime soon. In fact, SQM predicts that lithium prices in the third quarter of 2022 will be higher than in the second quarter. It further forecasts that fourth quarter prices will remain at the same level as those of the third quarter.
Pink outlook for electric vehicle and lithium market
More and more cars are being electrified amid growing climate concerns. In fact, green vehicles continue to buck the downward trend in new car sales. According to Canalys, approximately 4.2 million new energy vehicles (including battery-powered hybrids and plug-ins) were sold worldwide in the first half of 2022, marking a 63% year-on-year growth. ‘other. During the period, 2.4 million electric vehicles were sold in China. The China Passenger Car Association predicts that sales of electric vehicles in the world’s largest automotive market will double to 6 million units in 2022. In the United States, 414,000 units of electric vehicles were sold in the first half of 2022, the share of electric vehicles representing 6% of new cars. Sales. This represents a 62% year-on-year growth compared to the corresponding period of 2021.
Demand for electric vehicles is expected to soar in the United States with the passage of the Cut Inflation Act last month. The bill expands tax breaks for new electric vehicle purchases and seeks to transform the U.S. auto industry with incentives that would encourage automakers to ramp up production of zero-emission vehicles, further boosting industry prospects. sizzle of electric vehicles.
According to S&P Global Platts Analytics, global electric vehicle sales are expected to reach 26.8 million units by the end of the decade. To put that into perspective, green car sales totaled 6.6 million units in 2021. Fortune Business Insights estimated the global electric vehicle market size to grow from $287.4 billion in 2021 to 1 .32 trillion dollars in 2028.
The growing penetration of electric vehicles will have a ripple effect on the supply chain, making lithium more attractive than ever. Importantly, more than half of all lithium produced is deployed in rechargeable batteries. The lithium space attracts the maximum attention of EV batteries. This would only continue to increase in the coming years amid the growing popularity of green cars and further eclipse the use of metal for traditional industrial purposes, including ceramics, polymers and glass ceramics.
According to Statista, global lithium demand is expected to exceed 2 million metric tons of lithium carbonate equivalent by 2030, driven primarily by electric vehicle battery consumption. According to 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 period 2021-2028. With lithium being key to a low-carbon future, the growing demand for this metal, coupled with production constraints and supply chain challenges, will help keep its prices on an upward trend.
3 actions to surf the lithium boom
Albemarle: Charlotte-based Albemarle is a leading lithium producer, with battery-grade lithium production plants in Australia, China, Chile and the United States. The company’s lithium unit accounts for the highest percentage of overall revenue and profit. ALB therefore remains focused on expanding its lithium footprint.
Albemarle invests in high-return projects to boost productivity and is well positioned to benefit from long-term growth in the battery-grade lithium market. The Kemerton plant in Australia and the expansion of La Negra III/IV in Chile strengthen the outlook. In the United States, Silver Peak’s expansion plans are progressing ahead of schedule. The acquisition of the Qinzhou plant in China will also enable further growth in conversion capacity and increase lithium volumes.
As of June 30, Albemarle had cash on hand of approximately $2.6 billion. The company is also a dividend aristocrat, having increased its annual dividend for 27 consecutive years. Zacks’ consensus estimate for Albemarle’s earnings in 2022 implies 425.2% year-over-year growth. The stock currently sports a Zacks rank of No. 1 (Strong Buy).
Livent: Livent, based in Philadelphia, is the largest vertically integrated producer of low-cost lithium, with operational sites in the United States, England, India, China and Argentina. Livent has been mining lithium brine at Salar del Hombre Muerto in Argentina for over 20 years. It is one of the cheapest resources for lithium carbonate, giving the company a competitive edge.
LTHM is on track with all of its capacity expansion programs. The first 10,000 metric tons of lithium carbonate expansion in Argentina is expected to be completed by the end of the year. The second 10,000 metric ton lithium carbonate expansion is expected to be completed by the end of 2023. Livent remains on track with an addition of 5,000 metric tons of hydroxide at Bessemer City by the end of the third quarter of 2022. The company is expected to add 15,000 metric tons of lithium hydroxide capacity at a new site in China by the end of next year. The Quebec Nemaska Lithium project is expected to start in 2025 and will contribute to Livent’s revenue growth.
LTHM expects strong demand and high lithium prices to support its outlook through 2022. The company expects revenue in the range of $800-860 million this year, implying an increase of 97% year-over-year in the middle of the guided range. Adjusted EBITDA is estimated at $325-375 million, suggesting significant growth from the $70 million recorded in 2021. The consensus score for LTHM earnings in 2022 implies year-over-year growth. another of 666.7%. The stock currently sports a No. 1 Zacks rank.
Sociedad Quimica produces and distributes lithium and its derivatives. SQM offers lithium carbonates for various applications including electrochemical materials for batteries, frits for ceramic and enamel industries, heat resistant glass, air conditioning chemicals, continuous casting powder for steel extrusion, aluminum primary smelting process, pharmaceuticals.
Sociedad Química sells lithium derivatives and is an ingredient in the manufacture of gunpowder. In addition, SQM supplies lithium hydroxide to the lubricating grease industry as well as battery cathodes.
This Zacks No. 2 (buy) rank company has an expected earnings growth rate of over 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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