Lithium ETFs Strengthen after Orocobre Acquires Galaxy Resources

A lithium sector-specific exchange traded fund jumped on Monday after Orocobre Ltd. (ORL) agreed to acquire rival Australian miner Galaxy Resources Ltd. (GXY) in an all-stock deal.

Among the better performing non-leveraged ETFs of Monday, the Global X Lithium & Battery Tech ETF (NYSEArca: LIT) increased 3.2%.

Meanwhile, Orocobre Limited shares jumped 8.4% and Galaxy Resources Limited shares rose 3.4%. LIT includes a 1.1% position in ORL and 0.8% in GXY.

Orocobre’s buyout of Galaxy Resources would create a $3 billion miner and one of the world’s biggest producers of lithium, which is commonly used in batteries for electric vehicles and other high-tech products, the Wall Street Journal reports.

The deal comes as lithium commodity prices are surging on supply concerns and a bigger-than-expected electric vehicle boom as more countries focus on lower greenhouse gas emission targets.

Orocobre operates the Olaroz lithium mines in northern Argentina, while Galaxy runs the Mt. Cattlin mine in Australia and is also developing projects in Argentina and Canada.

If the deal goes through, the new combined miner would be the fifth-largest global lithium producer.

Looking ahead, lithium prices are expected to continue to increase in the coming years due to rising demand for electric vehicles, which are powered by lithium-ion batteries. Lithium would benefit the most from the shift toward electric vehicles since the widely used lithium-ion batteries require around 7% to 10% of lithium, regardless of the overall battery chemistry.

Furthermore, the Australian bank recently upwardly revised its price expectations for lithium last week, pointing to a projected shortfall of lithium supplies from 2022 that will widen as electric vehicle demand continues to pick up speed.

Lithium prices have already increased this year, notably in China, due to a strong recovery in battery demand and disruptions to supplies in Australia.

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