Amid a global supply glut of electric vehicles (EVs), lithium may be under short-term selling pressure. But an increased demand for EVs in the long term could also portend to the metal’s future strength.
The metal’s prices experienced a surge in 2021-2022. But that would only give way to a downtrend. That’s because EV demand hasn’t been able to keep up with supply production, resulting in a glut. Prices fell close to 14% during the month of June. That follows the larger downtrend. but ETF provider Sprott senses a bottom could be near.
“We believe that there may be limited price downside in lithium,” noted a Sprott Critical Minerals Monthly report. “This is due to the severe drop already priced in and the fact that much of the increase in lithium production has been from Chinese lepidolite (higher cost and lower grade), which may be priced out at these unsustainably low levels. As time passes and lithium destocking winds down, potential Chinese stimulus, interest rate cuts and the U.S. election remain elements to watch.”
“There is tension in the current lithium environment between the short-term impact of negative sentiment and longer-term positive fundamentals that will come to light,” the report added. “Exxon and lithium miners came to the industry’s defense at the Fastmarkets Lithium Supply and Raw Battery Materials Conference in June. [They stated] they are continuing to back EV-demand growth and are committed to lithium investment.”
Figure 5. Short-Term Negatives Wipe Out Gains for Lithium (2019-2024)
Source: Bloomberg. Lithium carbonate spot price, $/lb. Data as of 6/29/2024. Included for illustrative purposes only. Past performance is no guarantee of future results.
Buying Into Short-Term Weakness
Depressed prices offer an opportunity for investors to buy into the short-term weakness and capitalize on the long-term potential. The metal’s demand in the long-term horizon should in turn increase the demand for miners. Given this, an investment case exists for the Sprott Lithium Miners ETF (LITP).
The fund seeks to provide investment results corresponding to the total return performance of the Nasdaq Sprott Lithium Miners Index. That index aims to track the performance of a selection of global securities in the industry. That industry includes producers, developers, and explorers.
LITP gives investors an all-encompassing option to capture the growth potential in the metal’s miners without having to choose individual stocks. The exposure comes via an ETF wrapper. ETFs offer dynamic exposure without overconcentration in one or a few stocks.
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