ASX lithium stocks and ETFs: Risks & performance | finder.com

Lithium stocks in Australia

A precious metal with increasing demand — what you should know before you invest.

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Australia is one of the world's biggest lithium producers and home to several listed lithium miners. ASX lithium stocks include Pilbara Minerals (PLS), Altura Mining (AJM) and Orocobre (ORE).

Investors often tie lithium demand to the rise of electric vehicles, however the chemical has a number of important uses. Read on to find out how you can invest in lithium stocks, the pros and risks.

What is Lithium?

Lithium is a chemical element on the periodic table. This metal is soft and white, giving it the nickname “white petroleum.” 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 aluminum-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.

Chile, Australia and Argentina are the three largest lithium producers in the world, according to a 2020 US Geological Survey.

What are lithium stocks?

Lithium stocks are companies in the lithium industry. There are two 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 its green technology. So price fluctuations and changes in the lithium market can directly affect company stocks that use lithium as a raw material.

Why invest in lithium?

The world is progressively more technology-driven. 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.

The value of the global lithium market stood at $US4.3 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 1.9% from 2020 to 2027, according to a report by Grand View Research.

And as the global market for electric vehicles grows, the annual lithium demand for batteries is expected to skyrocket. According to Global EV Outlook’s technology report from June 2020, the global electric vehicle stock is set to grow by 36% every year, totaling 245 million vehicles by 2030 — or 30 times more than in 2020. An analysis by IBIS World found that annualized market size growth for lithium battery manufacturing in the US alone between 2015 and 2020 was 3.1%.

Risks of investing in lithium

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 the 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 to disappear in 2020, 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 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.

Lithium stocks

You can invest in lithium stocks by purchasing shares of a specialty chemical company that produces lithium or a business that uses lithium technology.

Lithium ETFs

Some ETFs follow the full lithium cycle from mining through battery production, while others specialise in the battery industry. To date, there is only one ASX-listed pure play lithium ETF:

Compare trading platforms

You’ll need a brokerage account to take the plunge with lithium stocks or ETFs.

Data updated regularly
Name Product Standard brokerage fee Inactivity fee Markets International
eToro Share Trading (US stocks)
US$0
US$10 per month if there’s been no login for 12 months
US shares
Yes
Zero brokerage share trading on US stocks with trades as low as $50.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
Superhero share trading
$5
No
ASX shares, ETFs
No
Pay zero brokerage on all Australian ETFs.
Trade ASX stocks with a flat $5 commission fee and a low minimum investment of just $100.
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
Exclusive: New customers who open an account with Bell Direct through Finder will pay no brokerage fees on the first five stock or ETF trades until April 30, 2021 (T&Cs apply).
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
IG Share Trading
Finder Award
IG Share Trading
$8
$50 per quarter if you make fewer than three trades in that period
ASX shares, Global shares
Yes
$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.
CMC Markets Stockbroking
$11
No
ASX shares, Global shares, mFunds, ETFs
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges.
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Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Bottom line

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 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.

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