Why the Battery Metal Boom has More Room to Run

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In today’s Money Morning…lithium miners have dominated…the geopolitical landscape is still offering up a lot of potential…now is the time to start building up a position…and more…

You’d have to be living under a rock to not know that lithium has been a hot investment trend.

From roughly mid-2020 through to early 2022, lithium miners have dominated in terms of share price gains. A trend that has surged to life once more as the battery boom narrative gripped investors’ attention as Tesla grew, and grew, and grew.

Everyone understands now that electric vehicles (EVs) are here to stay.

In fact, we are at a pivotal turning point in terms of user adoption. Carmakers worldwide are scrambling to ensure they have some sort of EV offering. A fact that is being pushed by the ongoing transition away from the combustion engine — for better or worse…

But I’m not here to argue about whether the EV boom is good for society or not.

That’s irrelevant at this point because, like it or not, EVs are undeniably the future of the automotive industry. And savvy investors have been able to reap the reward of this megatrend by betting big on the materials that will help usher in this future.

In other words, battery metal miners — but especially lithium stocks — have thrived.

The question on everyone’s mind is whether this success is sustainable.

After all, commodities are often subject to intense cycles…

Peaks and troughs

Three weeks ago, you may recall that Goldman Sachs called an end to the battery metal boom. I even talked about the situation and its potential ramifications here, if you need a refresher.

The point is that the investment bank has gone cold on battery metals.

In their view, the big gains are now long gone. Instead, we’re going to enter a phase where the market begins to level out as new supply comes online to meet demand.

That’s certainly a possibility, but it is by no means guaranteed.

In the weeks since this hit piece for example, lithium prices have remained fairly steady. Granted, that doesn’t mean the situation can’t change, but it is an important first step for battery metal believers.

On top of that, the geopolitical landscape is still offering up a lot of potential too.

Last Tuesday, the US Department of State released details on one of its new policies. Known as the Minerals Security Partnership (MSP), it is just the latest tool in the ongoing struggle to ensure there are critical mineral supply channels outside of China.

That is going to be huge for many of the upcoming battery metals producers. As the media release noted:

Demand for critical minerals, which are essential for clean energy and other technologies, is projected to expand significantly in the coming decades. The MSP will help catalyze investment from governments and the private sector for strategic opportunities — across the full value chain — that adhere to the highest environmental, social, and governance standards.

For Australia, which is a key partner in this MSP program, this is a big win. You should expect to see plenty of support from both the US and Australian governments in existing and new projects to help meet the needs of this partnership.

In other words, investors should be prepared for more incentives to come. A development that really puts a dampener on Goldman’s more downbeat outlook.

This battery metals cycle may just be getting started…

The chosen ones

Whether you buy into my enthusiasm or not, I do want to point out that I’m not the only one who holds this bullish view for battery metals. Just this week I saw a great discussion from a webinar hosted by Market Matters. You can check that out for yourself right here, if you’d like.

The overall point though is that demand is the big consideration.

Long term, there is no escaping the fact that in order to address our energy needs, battery technology and battery metals are going to be vitally important. And if that demand keeps growing, prices for said metals will keep going up too.

Of course, the current market mood has thrown a bit of a wrench into this outlook. Bear markets don’t exactly make for the easiest times for retail investors.

But, as my colleague — Callum Newman — will tell you, that is precisely why now is the time to start building up a position in these battery metal plays.

In his own words:

Now, a recession in the short term could suppress car buying and therefore demand for battery minerals. That’s what the market is doing now.

However, the lead times on mine projects are so long that the world can’t stop investing. In fact, it needs to go BIGGER now so that the supply is there to meet the demand in 2025 and beyond.

If private investors won’t step up to the plate now, either from hesitancy or fear, then it’s highly likely car makers, or governments, will just do it themselves.

This is another reason why I find the bearishness on Australia misplaced. We have a continent full of the natural resources that the world needs to get off fossil fuels.

As long as you can find great projects with great fundamentals, the opportunity is still strong. These ‘chosen’ stocks as it were, like the miners that have been handpicked by Tesla to supply crucial lithium, are not going away.

The battery metal boom may be at an impasse, but the biggest returns are still yet to come.


Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.

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About Ryan Clarkson-Ledward

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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