Why The Lithium ETF's Rally Could Prove Credible | ETF Trends

The Global X Lithium & Battery Tech ETF (NYSEArca: LIT) is in the red year-to-date, but the first ETF dedicated to lithium is up 6% in the fourth quarter and has surged more than 14% off its September lows.

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.

In a recent interview with Global X, noted lithium expert Joe Lowry talked about some of those catalysts that could lift the lithium market next year and some of the issues facing the group.

“The rising tide will benefit the “Big 4” (Albemarle, SQM, Ganfeng Lithium, Tianqi Lithium) plus Livent who are all well-established in supplying the battery quality lithium market,” Lowry told Global X.

Albemarle and Chile’s SQM combine for over 31% of LIT’s weight, according to issuer data.

Loving LIT

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 is becoming apparent. However, the lithium industry most boost investment to meet demand.

“There is no shortage of lithium resources but there is a shortage of investment. In my opinion, the industry needs at least $12 to $14 billion invested as soon as possible to meet 2025 demand,” Lowry told Global X.

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.

“I have not done site audits of cathode makers in China’s raw material inventory, but the destocking phenomena has been well established via conversations with key players in China,” said Lowry. “Even the oversupply camp has noted this situation. Once the price for battery quality material begins to rise, both natural market growth and restocking will put pressure on price quickly; however different from the last time oversupply of poor-quality material/primary grade will create an even greater gap in price between technical grade and battery quality lithium.”

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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.