The Global X Lithium & Battery Tech ETF (NYSEARCA: LIT) was a star in 2017, surging more than 59% on its way to one of the best performances by any non-leveraged ETF. This year, things have been different for the lithium fund as it is down nearly 14% year-to-date. Some market observers are offering differing views on lithium, the main component in the batteries powering electric vehicles.
As more countries plan for electric vehicles to diminish their reliance on gasoline-powered vehicles, bullish investors are betting that the world will experience one of its biggest shifts in commodities demand since the 19th century when petroleum replaced whale oil as lighting fuel.
“A month ago Morgan Stanley sent shares of lithium producers and explorers tumbling after the investment bank forecast growing surplus in the market starting as soon as now, resulting in forecast prices halving from today’s levels,” reports Frik Els for Mining.com.
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.
Lithium Outlook as Demand Rises
Lithium prices have more than doubled in the past two years on rising demand for battery raw materials used in electric vehicles. For instance, a Tesla Model S incorporates more lithium in its batteries than 10,000 smartphones combined, according to Goldman Sachs.
Looking ahead, Morgan Stanley argues that the current year will mark the end of the global lithium deficit as there will be “significant surpluses” from 2019 onwards.