On October 19th 2021, we had the opportunity to join a number of lithium industry insiders who gathered to attend a conference hosted by UBS and Benchmark Mineral Intelligence. As investors seek to learn more about lithium’s growth potential, here are 5 important takeaways from the conference:
How to investors analyse lithium prices without a futures market?
The lack of a futures market presents challenges in tracking lithium spot prices. In addition, lithium does not just come in one standardised form. Instead, it can take a variety of grades and compounds, with each type demanding a different price. Some data providers have attempted to tackle this issue to provide more transparency into the lithium market. Benchmark Mineral Intelligence, for example launched the BMI Lithium Index, which is a composite index consisting of prices for a blend of eight different forms of lithium.
How are lithium miners interacting with the rest of the value chain?
Lithium miners typically enter into contracts to deliver the metal to purchasers like battery producers. Lithium purchasers spoke about the need to obtain the correct type of lithium for their business, which can be a challenge given the broad differences in lithium from different miners. Some suggested that, in this sense, lithium should be considered more as a chemical than a commodity. Just like other chemicals, any type of imbalance would render the lithium unusable if the compound does not match the user’s exact need. These specialised requirements can limit new lithium supply coming on the market.
Can battery costs fall while lithium costs rise?
Many battery producers believe that improvements in production efficiency and scale will continue to drive costs down, resulting in additional demand for batteries. At the same time, a large increase in battery production could strain lithium supply in the near term, particularly as it can take 5-10 years for a lithium miner to bring new supply to the market. Fortunately, lithium makes up only around 3% of a battery’s costs. This means lithium prices could rise, while the overall battery costs still fall.
Are there near term supply concerns in the lithium market?
The consensus belief within the industry is that there are no concerns over a near term supply glut. Lithium mines and evaporation ponds can take quite a while to actually bring supply online. A typical project can take 1-2 years to complete feasibility studies, 4-5 years to begin mining process, and 8-12 years to ultimately begin delivering lithium. Advances in technology may improve lead times in the future, but near-term supply concerns appear unfounded.
Why Invest Now?
Overall, the investment thesis for lithium remains robust. Demand for lithium is increasing from multiple sources including industrial uses, electronics, and of course, electric vehicles. While there are a handful of new lithium mining micro-cap stocks, the mid and large-cap segment of the lithium market appears particularly well positioned to withstand multiple economic cycles given their greater project diversification and more efficient access to the capital markets.
Investors interested in seeking exposure to lithium can consider the Global X Battery Tech & Lithium ETF (ACDC), which offers investors exposure to the energy storage and production megatrend, including companies involved in the supply chain and production for battery technology and lithium mining.
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