The once hot Global X Lithium & Battery Tech ETF (NYSEARCA: LIT) is off about 6% over the past month, whittling its year-to-date gain to a still impressive 56%. That makes LIT one of this year’s best-performing non-leveraged exchange traded funds and the recent pullback in lithium prices could be a buying opportunity for prescient investors.
As the U.S. sees a growing shift toward larger batteries on increasing electric vehicle demand, the industry will have to raise production from 68 gigawatt-hour of lithium-ion cells last year to 1,165 GWh over the next decade, brokerage Berenberg projected.
“Half of all global lithium consumption was used in energy storage. That’s all the batteries that go into electric vehicles (EVs), phones, grid storage, and other electronics. Importantly, while 50% of all lithium went to energy storage, that’s up from 30% just two years earlier. This makes for a tight market,” according to ETF Daily News.
When many investors think of lithium, they think of electric vehicles. Indeed, electric vehicles, or EVs, are integral parts of the lithium demand equation.
“While electric vehicles have previously been viewed as a gadget for affluent early adopters, EVs appear to be on the verge of going mainstream,” according to Global X research. “A major driver of this change is a major reduction in battery costs, which has made EVs much more affordable relative to traditional combustion engine-powered vehicles. Bloomberg’s New Energy Finance unit found that lithium-ion battery costs fell by nearly 50% from 2014 to 2016 as battery producers raised output and competition increased.”
“Indeed, the tight market is going to continue to squeak into 2018, according to Benchmark Minerals and other experts. Even as new mines come online. The mines simply can’t come online fast enough. It takes many years to find and develop a deposit. And there are risks all along the way,” reports ETF Daily News.
With the economy recovery maturing, the materials sector, which is closely tied to the prices of raw materials, have traditionally done well as inflation rises and late-cycle economic expansions help support demand. With more lithium battery factories coming online, production of the metal could triple over the next five years.
Historically, traditional materials ETFs are solid performers in December and January.
For more information on the materials space, visit our basic materials category.