Battery-grade lithium carbonate is trading around US$21,400 per tonne after pulling back recently from a high of US$29,204 in May.Dado Ruvic/Reuters
Lithium, often called the “white gold” of the energy transition, has seen a dramatic price rebound after a three-year bear market.
Although lithium’s investment bull case has expanded from electric vehicle (EV) batteries to growth in energy storage systems and governments stockpiling strategic metals, potential rewards for investors still come with high volatility.
Jeremy Lin, portfolio manager with Purpose Investments Inc. in Toronto, is bullish on lithium in the short- and longer-term, and began investing in a couple of lithium stocks in March.
Higher gas prices caused by the Iran war are a short-term catalyst boosting lithium demand for EVs in Europe and Asia, while the supply-demand picture has improved, says Mr. Lin, who oversees the Purpose Global Resource Fund.
Raw lithium is extracted by pumping underground saltwater, or brines, into evaporation ponds or through hard-rock mining. After processing, it turns into a fine, white powder.
Battery-grade lithium carbonate is trading around US$21,400 per tonne after pulling back recently from a high of US$29,204 in May, according to Bloomberg data sourced from Asian Metal Inc.
Lithium hit a record high of around US$84,525 per tonne in 2022 before plunging sharply to a low of US$8,260 per tonne last August because of a massive oversupply.
Its price began rallying when China began a regulatory crackdown last August on lithium miners to stop price wars and overcapacity. It revoked expired permits and is applying stricter rules for new ones.
Chinese battery giant Contemporary Amperex Technology Co. Ltd. (CTATF) suspended operations at its Jianxiawo mine, which accounts for 3 per cent of global lithium production. The recent pullback in the lithium price stems from market speculation that the mine will reopen soon, but there’s been no confirmation.
Zimbabwe, Africa’s top lithium producer, then suspended exports of raw ore in February and plans to ban exports of lithium concentrates next January to force firms to build domestic processing facilities.
Mr. Lin suggests lithium could be in a more balanced market by 2027, and eventually in a deficit scenario as demand grows. His base case is for demand to grow by around 10 per cent annually over the next five years.
Power-hungry artificial intelligence data centres will increasingly need to rely on battery energy storage systems, but that’s probably a medium- to longer-term catalyst for lithium, he says.
Because lithium is “historically a very volatile commodity,” he says he’s taking a barbell approach for his two lithium stocks.
His fund owns Lithium Argentina AG (LAR-T) because it’s a low-cost operator with brine projects, generates free cash flow, has an aggressive growth strategy and is a potential takeover target.
Lithium Africa Corp. (LAF-X) is an early-stage miner consolidating undeveloped mining assets in Africa, he says. Chinese firms, he notes, have a strong foothold there to feed their EV supply chain.
Jacob White, director of ETF Management at Sprott Asset Management LP in Toronto, sees lithium in a more balanced market now with EVs representing 66 per cent of global demand and battery energy storage about 15 per cent.
Although last fall’s elimination of the US$7,500 tax credit for EV purchases in the U.S. has hurt lithium demand there, EV adoption rates are rising elsewhere, Mr. White says.
What’s surprising is the growing demand for lithium in grid-scale energy storage systems as renewable energy became more pressing due to the Iran War, he says. “Nations woke up to the idea that they need to invest in their energy grids.”
Lithium demand will also benefit from governments creating strategic metal reserves, he says. In February, the U.S. government launched Project Vault, a US$12-billion public-private initiative to create a critical metals stockpile that will include lithium.
Last year, the U.S. also acquired a 5-per-cent stake in Vancouver-based Lithium Americas Corp. (LAC-T) and a separate 5-per-cent interest in its Thacker Pass joint venture with General Motors Corp. (GM-N). This is the largest known lithium deposit in North America.
Despite a bullish outlook for lithium, Mr. White acknowledges the sector is very volatile and says investors should have a time horizon of multiple years.
The U.S.-listed Sprott Lithium Miners ETF (LITP-Q) has surged 128 per cent over one year, but the fund’s US$12-unit price, which includes three annual distributions, is still down from US$20 a unit when it launched near the cycle peak in 2023, he says.
The Canadian-listed Global X Lithium Producers Index ETF (HLIT-T) launched in 2021 and also has had wild swings.
Seth Goldstein, senior equity analyst for resources at Morningstar Research Service LLC in Chicago, says he believes lithium is in a balanced market now, but prices will fluctuate heavily.
Whether lithium can keep rallying depends on the pace of the mine restarts in China, Mr. Goldstein says. “If supply is delayed, we could see prices rise.”
Still, he expects the long-term price for lithium to be around the US$20,000-level, with prices rising above or falling below it.
“The big price recovery I was expecting happened and a lot of lithium stocks are fairly valued,” he says. “I am not a super bull, but I am also not super bearish.”
His large-cap lithium-stock coverage includes Albemarle Corp. (ALB-N), a U.S.-based specialty chemicals company and the world’s largest lithium producer, and Sociedad Quimica y Minera de Chile SA (SQM-N), a Chilean chemical company and lithium producer.
“Right now, we don’t see a ton of upside in the names we cover,” Mr. Goldstein says.
Although he’s cautious over the short term on the lithium space, he’s bullish longer-term due to growing demand from EVs and battery energy storage. “That thesis is still very much intact,” he says.