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With the world transitioning to net zero, the demand for lithium is soaring, but is it the cash cow investors are hoping for?
Lithium remains one of the hottest investment trends. Following strong gains in 2020 and 2021, lithium is off to a solid start in 2022. In fact, the price of the underlying asset is up 77%, with many of the shares following.
Australia is one of the world's biggest lithium producers and home to several listed lithium miners. As such, Australian investors are well placed to cash in on the latest hot stock. However, like any trend they'll be major winners and losers along the way.
Read on to find out what you need to know about lithium shares.
Lithium stocks are companies in the lithium industry. There are 2 main types of lithium companies: lithium producers and companies that rely on lithium as a raw material.
Companies that produce lithium can either mine hard rock or harvest lithium-brine deposits. Mining removes lithium from a mineral using a drill, while harvesting brine deposits extracts lithium that has dissolved in groundwater through evaporation. The brine technique takes approximately 18 months, which is slower than traditional mining.
On the other hand, companies that use lithium generally focus on lithium-ion batteries and devices. For example, electric vehicles rely on lithium as the basis for their green technology. Many of the major car manufacturers have been announcing partnership with Lithium miners. So price fluctuations and changes in the lithium market can directly affect company stocks that use lithium as a raw material.
Some examples of Lithium miners or producers include:
If you like the trend but are not sure how to get started, taking a basket approach might be a sound strategy.
Some exchange-traded funds (ETFs) follow the full lithium cycle from mining through battery production, while others specialise in the battery industry. To date, there is only 1 ASX-listed pure play lithium ETF:
Buy lithium stocks online
You’ll need a brokerage account to buy lithium stocks or ETFs. Compare options in the table below.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Important: Share trading can be financially risky and the value of your investment can go down as well as up. Standard brokerage is the cost to purchase $1,000 or less of equities without any qualifications or special eligibility. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Why invest in lithium?
Lithium is set to become one of the major commodities needed for a modern world.
While lithium has been traditionally used in ceramic and glass production, it’s now more popularly used in rechargeable batteries in smartphones, laptops and electric cars.
Lithium also strengthens other metals. For example, lithium alloys, such as aluminium-lithium, are used in bicycle frames and aircrafts. And in the pharmaceutical industry, lithium is used to balance neurotransmitters in the brain to treat bipolar disorder.
The world is progressively more technology-driven and this in turn increases our need for materials such as lithium. Rechargeable lithium-ion (Li-ion) batteries have multiple applications – from consumer smartphones and laptops to military voice and data radios. Lithium plays an essential role across mobile technologies, with the demand for lithium-ion batteries poised to triple by 2025, according to an analysis by S&P Global.
A lot of this growth will come off the back of electric vehicles (EVs). The Australian Department of Industry, Science, Energy and Resources forecasts EV sales to grow from around 5 million units in 2021 to 30 million by 2030. Deloitte agrees, stating EV sales are set to reach 11.2 million in 2025, then 31.1 million by 2030 at 32% of total market share.
Risks of investing in lithium stocks
Although the demand for lithium is soaring, lithium stocks have been drowning in a surge of new lithium producers from Chile, Argentina and Australia. When supply grows faster than demand, it can trigger a sharp price drop and cause stocks to become undervalued.
Lithium-ion batteries also require cobalt to produce. Unfortunately, two-thirds of the world’s cobalt is mined in the Democratic Republic of Congo, making its supply susceptible to political instability. And since global cobalt mine supplies are also at risk of disappearing, there may not be enough cobalt to manufacture these batteries.
And it doesn’t help that there’s no benchmark price for lithium. So investors in Australia can only base the value of the industry on a handful of companies. You’re flying blind without a full sense of the global market, leaving investors and banks struggling to manage risk.
We can find lithium products in our everyday lives. The increasing demand for lithium-ion batteries in mobile devices and electric vehicles keeps this stock on Australian investors’ radars.
But to invest in lithium, you’ll need a brokerage account. Weigh a few trading platforms to find a brokerage firm that best fits your investing needs.
Frequently asked questions
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