How to buy lithium: How to Invest in Lithium

How to buy lithium

The majority of lithium mines are found in either Australia or South America. Specifically, Australia, Chile, and Argentina produce the greatest volumes of lithium in the world. However, with lithium becoming an important commodity, the U.S. is now also trying to build up its domestic supply.

Australia was once again the world’s largest lithium producer in 2021, followed by Chile and China. Lithium is key to so many products worldwide and will likely be required long into the future. As the need for electronics and EVs continues to increase, the argument for demand is clear to see. What is a little harder to predict is the future change in supply as lithium producers try to catch up. As company stock is one of the very few ways to invest in lithium, understanding the methods of lithium extraction will significantly help when it comes to evaluating lithium producers. As most of you will know, supply and demand is the key driver behind most markets.

It is the demand for EVs that has had the largest impact on lithium prices over the last few years. Consequently, slow production means that lithium producers cannot easily react to increasing demand from manufacturers, which has been witnessed over the last couple of years. In a standard futures contract, you actually buy the product in question. If you enter a contract to buy lithium, and do not sell it to someone else, on the contract’s expiration date someone will literally show up with a truck full of lithium.

  • The company recycles batteries to recover lithium and other materials.
  • By investing in an ETF, an investor can gain access to an instantly diversified portfolio, which can include both lithium producers and lithium manufacturers.
  • The company says it will have 180,000 metric tons of lithium production capacity in 2023.
  • Lithium is found globally in hard-rock deposits, evaporated brines and clay deposits.

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This would affect the financial results for companies that operate in Chile, as well as any company with plans to develop lithium mining there. Chile’s National Congress would need to sign off on the plan before it proceeds. You can search any of the stock tickers mentioned in this article on an online brokerage and add them to your portfolio.

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This is because lithium carbonate has a wide range of use cases including within the construction, ceramic, lubricant, and pharmaceutical industries. Up until recently, it was also the lithium of choice for batteries. However, many electric vehicle manufacturers are now turning to its sister product — lithium hydroxide.

How to buy lithium

The Federal Reserve has raised interest rates significantly, which has contributed to the overall declines in the stock market as a whole. That could explain why the stock is the best performer on the list over the last two years, rallying over 1,500%. Currently, PLL has zero sales and has reported negative EPS for the last five years. That is likely to continue through 2022, but 2023 could be a different story.

Last year, EV sales grew by 65% while total new-vehicle sales dropped 8%, according to Kelley Blue Book. Lithium is found globally in hard-rock deposits, evaporated brines and clay deposits. There’s some contention as to which type of deposit is superior, but generally there are tradeoffs for any option. Sign up for our daily newsletter for the latest financial news and trending topics.

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Earnings per share stood at $2.63, and its dividend yield is 14.92%. To start, it helps to understand the lithium production landscape. Alternatively, investors can follow the price of lithium-producer stocks. This can provide a proxy for lithium price that can be used to estimate bullish or bearish price action.

With demand for lithium rapidly increasing, a McKinsey & Co. report suggests lithium needs will grow 25% to 26% per year until 2030. Tesla is also not the only firm with megafactory ambitions — as Benchmark Mineral Intelligence has pointed out, in 2020, China was building battery megafactories at a rate of one every week. Of the 300 lithium-ion battery megafactories the firm is tracking, 226 are in China, while 30 are in Europe and 23 are in North America.

The company mines lithium and refines it into intermediate materials used to produce batteries for EVs and handheld devices. The company has seen strong earnings per share (EPS) and sales growth over the last four quarters, jumping more than 432% and 265%, respectively. Based on the company’s earnings performance this year so far, it should top 100% year-over-year EPS growth in 2022. Mining and chemical producer Albemarle is leading the charge in global lithium output. Among the company’s biggest customers is Panasonic (PCRFY 0.2%), which manufactures lithium batteries for everything from small consumer electronics to EVs. As is the case with all mining operations, getting new lithium projects up and running can be a costly endeavor.

  • They have more risk, but their share price has more potential to grow should things work out.
  • In an effort to bring more transparency to lithium prices, the London Metal Exchange (LME) has partnered with price reporting agency Fastmarkets to launch a lithium futures contract.
  • One of the best methods for gaining exposure to the lithium industry is through individual stocks.
  • That means that if someone does invent a better way of storing power, you are less exposed than you would be by investing in lithium more directly.
  • Albemarle is the biggest company on the list and the world’s largest lithium producer.
  • The new company, Livent, had a limited history operating as an independent company before the pandemic struck.

This is generally relied upon by producers and businesses who want to set their prices in advance. You can also buy a cash settlement futures contract, in which both parties agree not to exchange physical assets but rather to simply exchange the value of the contract in cash. To help lessen wild swings in value, consider buying a lithium ETF such as the Global X Lithium & Battery Tech ETF (LIT -0.21%) or invest in a basket of lithium stocks such as the ones listed above. Given the ups and downs in lithium production, keep any investment in this niche of the mining and chemicals industry small, and stay focused on the long term.

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The company is well-capitalized with cash and manageable indebtedness, and it has generated healthy profit margins. Albemarle recently made the news with a bid to acquire small Australian pre-production lithium miner Liontown Resources (LINR.F 0.52%). Liontown management is seeking a higher bid as of this writing. Chile is the world’s second-largest lithium producing country, behind Australia. But 2023 has been a different story, as the effects of inflation and China’s long pandemic lockdowns work through the system. Lithium supply is expected to briefly be in oversupply, which has sent prices back down to levels not seen since 2021.

How to buy lithium

You can also check out our top Australian lithium stocks article. Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all available deposit, investment, loan or credit products. Tesla is arguably the car manufacturer that first jump-started lithium price discussions. However, the EV revolution is now expanding to other automotive manufacturers, including GM, Ford, BMW, Audi, and VW.

It can take many years to ramp up to full production, draining a mining company of its cash and other liquidity in the process. The lithium market has been thrust into the spotlight over the last couple of years. After catching the attention of investors worldwide, it is a commodity that could add a whole new level of diversification to an investment portfolio. One of the best methods for gaining exposure to the lithium industry is through individual stocks. However, it is important to understand that stocks are a proxy investment. Buffett’s Berkshire Hathaway has dabbled in lithium extraction via geothermal brine methods, which is a byproduct of its geothermal power plants.

Once in a pure state, the commodity is then used in a vast range of products, including many that you will find around your home. It is used in the manufacture of pharmaceuticals, ceramics, glass, lubricants, and, importantly, in the production of lithium-ion batteries, which power the majority of electrical devices. Some lithium producers are publicly traded, like Albermarle Corp., which directly sells lithium to the companies that use it, so the more lithium costs the better it does. Lithium is a critical material for manufacturing batteries used in laptops, cell phones and electric vehicles, or EVs. With demand for all of these products surging, so is the demand for lithium.

Since 2020, increasing demand for lithium and restricted supply have led to higher lithium prices. There are a limited number of public companies that mine and refine lithium, plus a host of smaller startup operations that are in the early exploration or development stages of their resources. Forbes Advisor has identified eight lithium stocks that are worth looking at, including both more speculative startup names for well-established mining companies. SQM predicts demand for lithium will outpace supply over the long term, so it has been investing to increase its production capacity. With recent improvements now complete, the company thinks it will be able to increase its market share in supplying lithium, mainly for EV batteries.

The new company, Livent, had a limited history operating as an independent company before the pandemic struck. Resulting global supply chain issues have been affecting the firm ever since. SQM’s earnings also look strong overall, although reduced demand for lithium resulted in an anticipated drop in revenue in the first quarter of 2023. However, the company expects demand to increase 20% this year. SQM reported net income of $749.9 million in Q1, down from $796.1 million for the same period a year ago.

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SQM is one of the world’s leading producers of lithium, with a presence on five continents. That includes a presence in Chile’s Salar de Atacama, the country’s largest salt flat. The company says it will have 180,000 metric tons of lithium production capacity in 2023. Getting a look at lithium prices isn’t easy, and that can make it difficult for investors who are looking to assess the viability of a given project. Pricing in the lithium industry has always been opaque due to the dominance of a few major producers, with investors having very little pricing information they can trust.

This is the lowest grade on our list, but the company is still slightly investable. Morningstar looks at factors, such as financial leverage, balance sheet health and cash flow statements to develop its financial health grade. Thanks to the rapidly climbing demand for EV batteries, lithium metal prices have gone through the roof. The price of lithium has quadrupled in the 12 months to September 2022 and would be even higher if the U.S. dollar had not soared in value. The South American country’s president recently announced intention to nationalize the lithium industry with a state-owned company.