The lithium market has been on a roller coaster ride over the last few years. A glut of supply in 2018 triggered a 75% fall in the price of lithium hydroxide from $20,000–$5,000 a tonne last year. Yet, a recent uptick in electric vehicle sales has triggered a resurgence in lithium prices in 2021, with investment bank Macquarie forecasting the lithium market to enter a ‘perpetual deficit’.
The swings make it hard to get your head around whether lithium is worth investing in or not. The answer (as always) depends on your particular situation and your investment strategy.
To learn everything you need you know about lithium (and more), check out our free lithium investment guide.
What is the significance of lithium?
Lithium is classified as the lightest metal, but what makes lithium attractive for industrial application is the fact that it has the highest electrochemical potential among all the metals.
It’s ideal for use in rechargeable batteries, providing efficient energy storage.
Lithium is therefore an element of rising importance. In 2020, the European Union added lithium to its list of critical materials — materials most important economically with high supply risk.
Lithium is an essential component in the creation of lithium-ion rechargeable batteries, which are used to power everything from portable electronics like smartphones and tablets to electric vehicles (EVs).
Because of this, demand for lithium is expected to rise along with investors interested in exposure to the lithium theme.
Lithium demand is expected to grow
According to a September 2021 quarterly update from the Department of Industry, Science, Energy and Resources, world lithium demand is forecast to increase from 305,000 tonnes lithium carbonate equivalent (LCE) in 2020 to 486,000 tonnes by the end of 2021.
Demand is then forecast to spike to 724,000 tonnes by 2023 as global supply of EVs rises.
Rising demand in lithium has also led investment banks to upgrade their assessments of the white metal.
Credit Suisse, for instance, said in July that lithium might treble by 2025 from 2020 levels.
Macquarie echoed Credit Suisse, forecasting a wider market deficit for lithium in 2021 than previously anticipated. Macquarie expects the deficit to grow in 2022 and widen further in 2023.
While the world is accelerating its uptake of EVs, lithium miners are struggling to keep up with demand, with many only just coming online.
Many Australian lithium companies are still in their early phases, with most existing mines just starting or expanding operations.
ASX lithium stocks also tend to be valued at a higher multiple, driven by a stronger potential leveraged to the clean energy industry.
However, if you’re looking for a way to profit from the world’s move towards decarbonisation while limiting your risks, investing in the best lithium equities on the ASX may be a good move.
ASX lithium stocks to watch in 2021 and 2022:
Core Lithium Ltd [ASX:CXO]
Core Lithium seeks to become Australia’s next lithium producer by developing the spodumene Finniss Lithium Project near Darwin Port in the Northern Territory.
In 2021, CXO released a Definitive Feasibility Study and a Scoping Study on Finniss.
Both suggested Core could produce an average of 173,000tpa of lithium concentrate at a C1 Opex of US$364/t and AU$89 million Capex through DMS (gravity) processing.
The initial Finniss mine life is set at 10 years.
As an advanced developer, Core expects to commence construction at Finniss before the curtain closes on 2021, with first production slated before the end of 2022.
Vulcan Energy Resources Ltd [ASX:VUL]
Vulcan Energy was one of the pin-up stories for the resurging ASX lithium sector in 2021.
Over 12 months to September 2021, the VUL share price gained 900%.
In large part this was due to Vulcan aiming to develop the world-first Zero Carbon Lithium project in the Upper Rhine Valley in Germany.
Vulcan is aiming to develop the project that will produce premium, battery-quality lithium chemicals with a zero-carbon footprint.
The company seeks to achieve this by harnessing renewable geothermal energy to drive production avoiding evaporation ponds, mining, or fossil fuels.
Lake Resources NL [ASX:LKE]
Like Vulcan, Lake Resources is pioneering cleaner lithium extraction and processing as it seeks to develop its flagship Kachi Project as well as three other lithium brine projects in Argentina.
Lake’s projects cover 200 square kilometres in a prime location well-known as the Lithium Triangle. 40% of the world’s lithium is produced at the lowest cost there.
LKE seeks to leverage direct extraction technology it has developed with tech partner Lilac Solutions.
Lilac’s technology has been backed by the Bill Gates-led Breakthrough Energy fund and MIT’s The Engine Fund.
LKE plans to produce high-purity lithium carbonate and has returned samples with 99.9% purity.
In November 2018, Lake announced a maiden JORC resource at Kachi of 4.4 million tonnes (Mt) of contained lithium carbonate equivalent (LCE).
In April 2020, Lake announced pre-feasibility study (PFS) results for Kachi, revealing an annual production target of 25,500 tonnes of battery-grade lithium carbonate using direct extraction technology.
Orocobre Ltd [ASX:ORE]
The merger was finalised in August 2021, with the two companies currently trading under ORE’s ticker.
The merged entity — suddenly the world’s fifth-largest lithium producer — said it wishes to rebrand as Allkem.
ORE and GXY — now Allkem — have combined their large assets in Argentina, part of the famous Lithium Triangle.
In Argentina, Orocobre completed around 60% of the Olaroz lithium carbonate plant expansion from 25,000mt/year to 42,500mt/year, while Galaxy has been developing the first stage of the Sal de Vida lithium brine project to produce about 32,000mt/year of lithium carbonate.
Prior to the merger, Orocobre was well on its way to completing a 10,000mt/year Naraha battery-grade lithium hydroxide plant in Japan.
This plant will help what is now Allkem to enhance its vertical integration by allowing it to convert Olaroz lithium carbonate into battery-grade hydroxide.
Allkem will also operate what was once GXY’s Mt Cattlin operation in Western Australia, which produces around 200,000 mt/year of spodumene concentrate.
Pilbara Minerals Ltd [ASX:PLS]
Pilbara Minerals is a pure play lithium business, owning 100% of the world’s largest independent hard-rock lithium operation.
Pilbara’s Pilgangoora operation in Western Australia produces a spodumene concentrate.
The Pilgangoora operation has attracted big global partners like Ganfeng Lithium, General Lithium, Great Wall Motors, CATL, and Yibin Tianyi.
In FY21, PLS shipped 281,440 metric tonnes of spodumene concentrate.
The above are not formal recommendations, but ideas which you may find useful.