Here’s an interesting scenario: lithium prices are faltering, but the Global X Lithium & Battery Tech ETF (NYSEArca: LIT) is soaring. Up nearly 7% over the past month, LIT has surged almost 23% off its 52-week low.

There are reasons to believe the current lithium equity rally could be credible and have more room to run. LIT tracks the Solactive Global Lithium Index. One of the oldest thematic ETFs, LIT is designed to provide exposure to “the full lithium cycle, from mining and refining the metal, through battery production,” according to Global X.

Lithium-ion battery capacity is vital because one of the primary factors car buyers consider when evaluating electric vehicles is how long those vehicles can run on a single charge. Tesla’s dominance in the booming electric vehicle market will also move the demand for lithium.

“Investment in battery manufacturing plants and electric vehicle factories continues to boom around the world, but for now the market for lithium shows no signs of emerging from a four-year slump,” reports Frik Els for Mining.com.Prices for the raw material used in lithium-ion batteries fell again at the end of last year, according to the December price assessment released by industry tracker Benchmark Mineral Intelligence.”

Loving LIT

With the popularity of electric vehicles spurring demand for automobile offerings from carmakers like Tesla, the lithium industry has taken a new turn. More uses will be found for lithium as the move to energy dependence from fossil fuels continues to increase demand for efficiency. Still, lithium miners have faced some struggles.

“Hard rock miners have been hardest hit when the price of spodumene concentrate (6% lithium for hydroxide manufacture) fell another 3.5% during October to average $450–$510 a tonne. That is a 45% drop in the last year,” according to Mining.com.

Against that backdrop, LIT’s battery producers, which can benefit from lower lithium prices, are winning.

Related: A Scientific Approach to Lowering Beta 

Predictably, China looms large in the lithium market. Lithium prices will weigh heavily on China’s demand for the commodity. Currently, market analysts are wary of lessening demand so supply will play a key role in what lithium prices do moving forward.

“Thanks to a slew of new hard-rock mines and expansions, Australia quickly became the number one producer of lithium over South American brine producers, but the additional supply and weakening conditions in the downstream industry in China, responsible for as much as 80% of global processing, have piled pressure on prices,” reports Mining.com.

For more on thematic ETFs, please visit our Thematic Investing Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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