Supply and demand forces are weighing on lithium prices, but the recent pullback could present investors with an area of value. The global shift to renewable energy sources like an increased use of electric vehicles (EVs) should keep lithium’s long-term prospects bullish.
On the short-term horizon, however, lithium prices have been retreating amid an oversupply that could extend through the next few years. Additionally, an ease in demand for EVs has consequently been affecting Tesla’s stock and thus, lithium demand as well.
“As the lithium market balances shift to adequately supplied in 2023 and oversupplied in 2024/2025, we expect to see a period of earnings and margin pressure across the value chain,” BofA analysts said, per a Reuters report.
Of course, for these prices to revive, the current supply will need to be depleted. If that happens sooner rather than later, that will appease bullish lithium investors.
“We expect a 15%-20% destock downstream to be necessary this fall and winter to clear the inventory overhang, unless the industry sees a sharp snap-back in demand before the Chinese New Year,” said Jefferies analyst Laurence Alexander.
Lithium Strong for the Long Term
As already mentioned, irrespective of what’s been happening in the short term, the long-term prospects are strong for lithium. Global government mandates on reducing emissions should keep demand for EVs elevated, and thus have a positive for lithium’s demand.
According to Morningstar, “Rising electric vehicle adoption and the increasing buildout of energy storage systems will keep lithium demand growing to surpass 1 million metric tons in 2024, from 800,000 in 2022, eventually hitting 2.5 million metric tons by 2030. While we see rising supply, we think enough projects will face delays to maintain a market deficit as demand grows.”
That said, mining stocks could present value-oriented investors with an opportunity and that could translate into future strength for miners or more specifically, the Sprott Lithium Miners ETF (LITP). Speaking to the fund’s diversification features is its holding across a variety of countries, including Australia, Canada, and the United States.
LITP seeks to provide investment results corresponding to the total return performance of the Nasdaq Sprott Lithium Miners Index. That index is designed to track the performance of a selection of global securities in the lithium industry. This includes producers, developers, and explorers. The fund features 44 holdings as of May 23, offering investors broad exposure to the industry’s ancillary services.
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