Are Lithium Stocks at Rock Bottom?
If investing is about pouncing at the point of maximum pessimism, lithium stocks must be worth a fresh look. The metal used to make electric-vehicle batteries has given investors whiplash. Prices rose rapidly in 2021 and 2022 before falling even faster in 2023.
Seaborne spot supplies of the benchmark compounds, lithium carbonate and lithium hydroxide, now cost roughly what they did in mid-2021, according to data from the price-reporting agency Fastmarkets. Investors can’t bet on lithium itself because the futures market remains undeveloped. Instead they typically buy shares in chemical suppliers with their own resources, such as U.S.-based Albemarle, or lithium-ore miners, often from Australia.
Albemarle stock has fallen roughly 60% from its peak, back to levels last seen in late 2020. A recovery isn’t yet in sight, but one will have to come eventually. Lithium prices are now too low to justify a chunk of today’s ore extraction in Australia and China, let alone investment in new production necessary to feed expected growth in the EV market.
That is setting up the conditions for a shortage and rally. This classic boom-bust story has played out before in lithium. A previous wave of excitement about electric vehicles triggered growth in prices and supply too early, leading to a correction and investment downturn in 2018.
When Tesla accelerated EV production in 2020 and battery companies started ordering more lithium chemicals, a scramble for scarce materials sent prices through the roof. But the rally brought unexpected new sources of lithium supply to light, notably in places such as Africa and China where investors have limited information on mining. That triggered today’s bear market, which has been prolonged by
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