A lithium sector-related exchange traded fund has powered up as prices on lithium-based chemicals that go into rechargeable batteries jumped this year on the increasing demand for electric vehicles.
The Global X Lithium & Battery Tech ETF (NYSEArca: LIT) increased 36.1% year-to-date. LIT offers efficient access to a broad basket of lithium mining, refining, and battery production companies.
The Wall Street Journal reports that the average price for lithium carbonate, one of the two key compounds in battery manufacturing, hit $14,386 per metric ton in August, compared to $6,124 in December.
To be fair, the price of lithium carbonate is only recovering after prices peaked above $17,000 in early 2018 before plunging in a typical boom-bust cycle. The market experienced early investments that inundated the market before electric vehicles really began to gain wider acceptance. The coronavirus pandemic also struck, which further delayed the recovery in the lithium market.
With the rising popularity of electric vehicles, observers have taken a more bullish outlook on lithium demand. In its base case, IHS Markit projects the lithium market to more than double by 2025, compared to the expected 2021 level.
“This isn’t a false dawn like the lithium boom of 2016, which was characterized by fast money. There’s much more patient capital coming into the supply chain now,” Chris Berry, president of commodities advisory firm House Mountain Partners, told the WSJ.
While the lithium chemical element is abundant, supplies don’t come cheap. Most of the lithium is mined in Australia or high in the Andes. Additionally, bottlenecks in the conversion processes further add to the cost of producing the usable chemical compound. Meanwhile, new plants typically take years to run at full capacity so that the current supply could remain tight and prices elevated, with EVs gaining wider attraction.
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