Cairo: Gulf Brokers’ latest report indicated that the batteries market might face some challenges due to the lack of Lithium that is considered the main component in manufacturing Lithium-ion batteries which are currently indispensable for the world of electric cars and modern energy. The attractivity of this metal rises and investors’ focus is more and more shifting towards this direction, similarly to the case of palladium. But lithium reserves are limited and the demand increases. Apart from electric cars batteries, this metal is also used in smartphones, tablets, and other consumer electronics.
The report prepared by Mahmoud Abo Hadima, Senior analyst at Gulf Brokers mentioned that Lithium sources are localized in the territories of several countries. We can find Australia, Chile, Argentina, China, Zimbabwe, Portugal, Brazil and USA among the largest producers. According to the results of US Geological Survey, suppliers are aiming to satisfy increasing demand, which reflects in the metal production that rose by 13 percent over year between 2016 and 2017, up to 43 thousand metric tons.
It confirmed that production has seen an increase at the same speed as the commodity’s price, that rose in the mentioned time frame from 7,400 USD to 13,900 USD for a metric ton, which means an increase of 88 percent. According to Gulf Brokers price increase was pushed mainly by investors’ concerns of supplying problems. There are only a few manufacturing plants and only several new ones are planned, since initial investments are enormous and it takes about 4 to 7 years until a new mine can be pronounced as fully operational.
All fears were dissolved at the beginning of last year, thanks to the agreement of SQM company and the government of Chile to increase lithium production until 2025. As a consequence, Morgan Stanley forecasts triple increase of commodity’s production until the same year. The information caused rapid sell-out and lithium price has been corrected significantly.
So why should the price rise again? The senior analyst at Gulf Brokers explains the reasons behind it; firstly, it is expected that the world’s new electric car sales will increase up to 5 to 6 million cars, which constitutes 5 to 7 percent market share. To put things into perspective, the global electric car sales were 2.1 million sold cars in 2018, an increase of 64 percent compared to 2017.
The stock price of lithium processing companies has recently returned into positive numbers. According to the analysis of Roskill company, the demand may rise even by 21 percent and it is expected that it will surpass its supply in 2021. With regards to these circumstances, the price of lithium may again fly in high levels. In the longer term, it is advised to focus mainly on leading companies that operate in this segment.
There are several leaders in the market. The largest lithium producer is Albemarle that has booked a 15-percent rise since the end of February and its stocks are currently traded at 85 USD per share. Then there are Tianqi Lithium Corp whose stock price rose to 39 USD per share – increase of 35 percent since January 2019; FMC stocks rose by 30 percent in the same time frame and are currently traded at 78 USD per share; and Sociedad Química y Minera de Chile (SQM) whose stocks rose by 8 percent since the beginning of 2019 and are currently traded at 40 USD per share. All aforementioned companies own approximately 85 percent share of lithium market. *
Since the demand rises and reserves are not inexhaustible, lithium recently became a very attractive subject of scientific activity and research that looks for a possible replacement of car batteries among related chemical elements. Until an adequate substitute is found, it is probable that lithium price will rise, as it is in the case of palladium that significantly exceeds the price of a long-time precious metal king – gold.
* Source of stock price information:
https://www.investing.com/equities/albemarle
https://www.tradingview.com/symbols/NYSE-SQM/
https://www.bloomberg.com/quote/002466:CH
Note: The exchange rate may affect the stock price.
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