Lithium stocks have been experiencing a tremendous year, thanks mainly to the demand for electric vehicles. With sky-high demands, investing in lithium is an excellent way to increase your portfolio and grow your assets. But before knowing how to invest in lithium stocks, let’s learn more about this tradable commodity and its incredible potential.
The Climbing Demand for Lithium
Chemically speaking, it is the lightest metal of all metallic elements and has soft, silvery-white color. Lithium is never found in its pure form in nature but is stored in certain compounds, such as pegmatitic and spodumene rocks. It is also present in the ocean and brine.
The soaring demand for lithium is mainly driven by the manufacturing of electric vehicles. While the knowledge of its use is not surprising (laptop and smartphone batteries contain lithium), the electric car industry has been leading the lithium boom like never before. Most of the world is expected to transition from using electric vehicles (EV) moving forward as environmental concerns grow by the minute. Therefore, the demand for lithium is only going to get stronger in the short and long term.
The supply, though, is another story. Morgan Stanley anticipates that there will be about 500,000 tons of lithium added to the market by 2025 from Australia, Argentina, and Chile. That’s more than twice the current supply of lithium and could potentially drive the price of the commodity down over the next few years, if not sooner.
Because of the abundance of lithium, many countries and independent companies can join in the action and start mining soon. With the sharp drop in lithium prices expected soon, is lithium a good investment still?
Is Lithium Still Worth Investing?
To answer that question straight up, yes, it is! Even with the supply growth increasing threefold over the next few years, a compelling case could be made that it may still not be enough.
How is that possible? The only way that could happen is when the EV revolution is in full swing. According to some experts, if that happens, the demand for lithium will increase ten times over the next decade! If we only got three times as much lithium as we have now, the supply is still not enough to go around.
How to Invest in Lithium
Unlike silver or gold, lithium is not a precious metal, so there’s no such thing as lithium bullion. Still, there are many opportunities out there to tap into the lithium market. Here’s how:
Stocks or securities
There are plenty of companies out there with a stranglehold of the lithium market. What are the best lithium stocks to buy? The Albemarle Corporation (ALBE) is the world’s biggest lithium producer while the Livent Corp. (LTHM) provides lithium for the world’s biggest battery producers. The Sociedad Quimica y Minera de Chile sits on one of the largest lithium reserves on the planet and has been performing really well with their stock up 54%.
Exchange-Traded Funds (ETF)
The distinct advantage of ETFs over stocks or securities is their diversification and broad exposure. What’s more, ETF may prove to be advantageous if you do not completely understand the market. The only pure-play option in lithium ETF right now is Global X Lithium ETF (LIT). LIT claims to invest in companies throughout the lithium-producing cycle, from mining to battery production.
Right now, the options are slim pickings. The leading company is Solactive (SOLLIT), which provides lithium exposure in commodity-focused indices.
Other Issues in Lithium Investing
Right now, it’s not about the question of “Is lithium a good investment?” because it is. The issues surrounding lithium investing stem from the fact that it isn’t traded on the stock market. If you want to invest in lithium, you have to turn to lithium companies to make it happen.
Another issue of lithium investing is the lack of transparency of lithium prices. This is because lithium is not traded publicly, and that lithium producers are scant, making it hard to grasp its actual market value. Because of that, it will be hard for any investor to approach lithium investing with a definite strategy.
With all that being said, it’s still imperative for any investor on how to invest in lithium stock, ETFs, or common indices. The demand for lithium will only increase in the future as the whole world transitions into utilizing electric vehicles because of environmental concerns. There is no shortage of lithium for now, but who knows what could happen in the future. Lithium has been a very essential mineral for key industries, and it will likely stay that way for years to come.