In the aftermath of recent car emission scandals, governments in countries such as France are strongly encouraging carmakers to go electric. Paris wants to banish petrol and diesel cars by 2030.
Elsewhere, such as the UK, diesel car demand has slowed. In turn this shift has refocused attention on low or zero emission electric vehicles. Those EVs require batteries, and prices of their key inputs — lithium, cobalt, lead and nickel — have soared.
The first two of these have attracted the most interest given their current importance to batteries. Together they make up about half of a battery’s cathode. No surprise that prices for each have trebled in less than three years.
Neither it is no surprise that share prices of both lithium and cobalt producers have also rocketed. But while nickel could replace some of the cobalt required over time, as cathode technology evolves, lithium should remain integral to all batteries for some time.
And lithium demand looks healthy, compounding at a 14 per cent rate between 2017 and 2022. That’s because sales of rechargeable batteries should treble by 2025 to $59bn, according to Credit Suisse, as buyers take up electrified vehicles, both hybrids and fully electric.
You know a bull market has arrived, though, when specialist indices and exchange traded funds appear for lithium. Have a look at what’s inside, though. The Solactive Global Lithium index not only has lithium makers such as US listed Albemarle and FMC Corp, it also contains carmakers Tesla and BYD. More than 40 per cent of index members at best only consume lithium. This index has more than doubled since early 2016. Junior miners such as Australia’s Galaxy Resources have been six baggers.
Even as demand builds, supply too is surging. Although Argentina and Chile used to make a large proportion of lithium carbonate, that balance will shift.
Australia’s contribution is increasing so rapidly that an excess supply of lithium carbonate is likely for the next couple years at least. “It’s our top short idea,” says Vivienne Lloyd at Macquarie.
Should lithium prices finally tumble, expect the lithium miners to head back to ground.