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Lithium: Market Leader or Liar?

LITHIUM: Market Leader or Liar? As the investment wildcard of the last 5 years. Lithium has been one of the fastest growing commodities in the world. With uses in battery and e-car technology, lithium sounds good on the surface – but deep down there’s a little more than what meets the eye. Here’s why:

Lithium as it stands right now

Something that a lot of people don’t know is that Australia is actually one of the worlds being producers of lithium. In a nearly $5B dollar industry. Lithium has experienced insatiable growth given its uses in battery and e-car technology; marketed as an eco-friendly commodity that is supposed to be good for the environment. In terms of historical performance. Host Andrew Baxter recommends overlaying a price chart of e-cars with lithium – to no surprise. We see a rapid increase in both values and an extremely close correlation.

The American traded global lithium ETF for example, LIT, is up somewhat 140% over the YTD. And up nearly 300% in the last 5 years. Looking more locally here in Australia, lithium-based battery producer. Volcun (ASX: VUL), has seen a 5,000% jump in its share price since inception. Yes, you read that correctly. And yes, lithium as it stands right now appears to be a market juggernaut. 


Lithium is set to skyrocket

According to the research conducted by our co-host, Mitch Olarenshaw. The price of lithium and lithium batteries is expected to skyrocket in the next decade. Specifically, lithium as a commodity is expect to grow at an annualized rate of 2% per annum – whereas more specifically, lithium batteries have an expected growth rate. Of a whopping 36% per annum through to 2030. Wow. As the demand for lithium looks to double in the next 4 years. All the signs are pointing in the right direction for an investor looking to gain exposure to this unique commodity.

Using our ‘litmus test of relevancy’, lithium certainly looks to become a bigger part of our world in the future rather than a lesser part. Looking at the European car market for example (given they are typically at the vanguard of automobile production). Lithium powered battery cars make up 20% of all vehicles sold in Germany and 80% of all sold in Sweden. This shows just how popular these batteries are becoming. 


The risks of lithium

If something sounds too good to be true, then it probably is. In the case of lithium. Yes, we have seen an insatiable amount of growth and a strong fundamental backing behind it. However, there are also underlying risks associated here as there is always more than what meets the eye. Interestingly enough, 93% of the world’s lithium is processed in China – a country who most of the world has some form of political or economic tension. Additionally, something that a lot of people don’t know is that the production of lithium batteries requires a mineral known as ‘cobalt’ to which two thirds of this valuable mineral is mined in The Republic of Congo.

Once again like China, Congo poses a massive political risk given their internal tensions – leaving the possibility of the tap being turned off by either country at any time. When a whole market’s livelihood and growth is dependent on two countries. Investors leave themselves wide open to both political and economic risk – not to mention the arduous balance between managing supply vs. demand.  


All that glistens isn’t always gold

When you dive a little deeper into how lithium is mine you will sure to find some shocking information. As host Andrew Baxter mentions, when lithium is mine and then roast – this creates around 15 tonnes of Carbon dioxide for every tonne of lithium produce. The only way around this is to actually get a reasonable duration. Out of the lithium batteries that are produced – only after a certain amount of time do they become ‘carbon neutral’.

Using a Tesla car as an example, this takes around 7 years for it to become carbon neutral as the benefits of using a lithium battery finally offsets the pollution created from its initial production. This may seem a little controversial, however, as a fundamental or caused-based investor, these are the key points you should take into account. Better alternate than carbon fuel? Yes, probably. However, keep in mind that all that glistens isn’t always gold.


How to gain exposure

Certainly, lithium looks to be lucrative from a trader’s perspective, so for anyone looking to gain exposure to this, there really are two ways that host Andrew Baxter recommends. The first is through an ETF (like LIT for example) as this can give you broad exposure with a much lower level of risk by virtue of diversification.

Alternatively, gaining exposure to specific lithium stocks may be the way to play if your appetite for risk is there. These are much more narrowed focus companies (meaning a greater potential upside). However, they are subject to more fluctuations in price. Stuck on where to go next? Reach out to Andrew’s team at Australian Investment Education for help.

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