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Jonathan Hill
Jonathan Hill

Buy Lithium Commodity

Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.

buy lithium commodity

According to the Imarc Group, the lithium battery market stood at $45 billion in 2022. Given the high demand for electric vehicles and computer batteries, the market is expected to skyrocket to $93.3 billion by 2028. That's a 13.8% compound annual growth rate for a sector that's just starting to scratch the surface of its market potential.

That scenario represents a quandary for investors, especially as demand for lithium batteries outstrips supply. How do you gauge the short- and long-term value of lithium batteries and what are the best ways to steer money into the sector?

For starters, there is no central market price with lithium. Say what you want about gold, silver or zinc, but there's a set price for each mineral for investors to use as a baseline in making any investment decisions.

Instead of having a regular, standardized market price, investors have to rely on lithium stock price movements or U.S. Securities and Exchange Commission documents on industry manufacturers for trends on sales, pricing and new mining developments.

Additionally, tracking Chinese markets where pricing standards are more pervasive can help draw a bead on lithium pricing trends. Investors can also check in on the Solactive Global Lithium Index, which monitors lithium producers and lithium buyers.

Much of the profit potential from lithium comes from the tight concentration of the product. By and large, a handful of global companies provide the world's lithium. That makes it tougher to avoid following the crowd and plow deep into the weeds to uncover hidden gems in the lithium market.

"Our outlook for the lithium market remains constructive over the medium to long term, though volatility in demand more recently has driven price softness to lithium markets," Bank of America analyst Steven Byrne said in a Jan. 11 research note. "We see current shares as pricing in too low of a lithium market price over the cycle, and thus rate shares 'buy' accordingly."

Albemarle Corp. (ALB). This lithium manufacturer is making red, white and blue waves in early 2023, inking big agreements with the U.S. Department of Energy to build a North Carolina lithium facility and a massive processing plant in Arizona. It's also announced plans to expand its extraction site in Nevada.

Widely known in lithium circles as the biggest worldwide lithium producer, Albemarle is expected to announce 600% or higher adjusted profit growth in the fourth quarter, just as the 2023 earnings season commences.

One fund that does mirror the Solactive Index is the Global X Lithium & Battery Tech ETF (LIT), which invests in a broad array of lithium products and services, such as mining, refining, distribution and sales.

Other lithium-linked funds also offer opportunity to investors. For example, Australia-based Global X Battery Tech & Lithium ETF (ACDC.AX) and Amplify Lithium & Battery Technology ETF (BATT) are amply stocked with companies in the lithium battery and EV markets. (Note: The Australian ETF is thinly traded and therefore less liquid than would be ideal, but has solid assets.)

Like most commodities, however, lithium prices have historically been highly volatile and usually send most risk-averse investors to the sidelines. If you do trade lithium on a futures exchange, you'll be engaging with savvy and experienced market traders, usually investment trading firms, commodity brokers, battery makers, auto manufacturers, hedge funds and other high-level investors.

It's also worth noting most futures market traders are trying to mitigate market risk and aren't attempting to speculate aggressively on stocks, bonds and commodities. That's a good mindset for anyone entering the lithium futures markets.

Investing in lithium is becoming increasingly popular. Read on to learn about the rise of lithium stocks and ETFs, and how you can trade on them on our award winning* Next Generation spread-betting and CFD trading platform.

As expectation grows, developers are focused on trying to create lighter and faster products and are concerned about the types of lithium used in the production of their products. Where renewable technology is growing rapidly and huge companies like Tesla are relying on lithium as a key ingredient of its products, the demand for lithium has increased greatly. Where some traders are worried by possible volatility in the market, other traders view investing in lithium as a great opportunity to gain potential reward from a market that has seen a rapid rise in demand.

Traders can invest in lithium mining stocks, which are shares of companies that are involved in the mining of lithium, and lithium battery stocks, reflecting companies that develop the batteries. It is also possible to trade shares of companies that are involved in both.

Investing in lithium involves the traditional method of purchasing shares of companies within the industry and holding them for a long period of time in the hope of making a profit. Alternatively, you can trade on the underlying price movements of lithium shares through spread betting or CFDs. Spread betting is a tax-efficient** way of speculating on the price movements of the underlying assets without taking ownership. CFDs allow traders to buy or sell a number of units for an instrument, with the difference in price being exchanged at the end of the contract.

US-based company Albermarle is one of the largest providers of lithium for batteries that power electric vehicles. It produces both types of lithium, carbonate and hydroxide, as the company sources lithium through its brine and rock mining operations within several countries. As well as being immensely successful in the electric car industry, the company also produces over 100 lithium-based products for a range of other industries. In order to protect itself from any great potential losses from volatility in the market, Albermarle can also benefit from the successes of its bromine segment.

Orocobre Limited is an Australian mineral resources company. The Brisbane-based company focuses on lithium and other mineral mining operations within Argentina. Orocobre is in partnership with Toyota Tsusho, and they are looking to grow its Argentinian-based flagship project, the Olaroz Lithium Facility. The capacity of this facility has increased to over 17,000 tonnes per annum of lithium carbonate. The two companies are also looking to construct a plant in Naraha, Japan, in order to expand their production of lithium hydroxide.

An alternative way of investing in lithium is by trading lithium ETFs. Exchange-traded funds (ETFs) are investment funds that consist of a compilation of assets; in this case, multiple shares of lithium-based companies. With our Next Generation platform, you can trade on the following ETFs:

ETFs allow you to gain access to the lithium market by providing exposure to underlying share prices, and to potentially gain from it too. Due to the fact that the risk is spread across multiple securities at the cost of only one trade, many consider ETFs to be a low-risk investment.

In summary, given that lithium is a key component of producing rechargeable technology, the demand for the precious metal has grown rapidly. With the hope that the demand will continue to rise, many traders view lithium as an attractive investment right now.

Register for an account to start spread betting and trading CFDs on lithium stocks or ETFs. Understanding the risks of trading with derivatives is important, and can be understood further by reading more about leveraged trading.

What are lithium stocks?Lithium stocks are the shares of companies that engage in the mining or processing of lithium. With our Next Generation trading platform, you can invest in lithium by spread betting or trading CFDs on lithium stocks.

Investing in companies that make lithium-ion batteries like Panasonic, Livent and Samsung allows you access to this market, while at the same time allowing you to invest in the companies themselves. 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.

Exchange-traded and mutual funds are another option for getting exposure to lithium equities. For example, there is Lithium ETF by Global X, which invests directly in lithium as commodity. It builds its portfolio out of assets linked to lithium, such as producers and heavy users of the product. The goal is to create a fund that mimics the success of the lithium market overall.

Finally, you can invest in lithium directly through the commodities market with futures and options. With these derivatives, as this type of security is known, you can literally buy and sell access to lithium as a material. However, it is important to note that the commodities market is extremely volatile and extremely risky. This is not a good market for inexperienced investors and you should only participate if you fully understand the costs and risks.

There are several ways to invest in lithium as a commodity if you are interested in it. You can pursue the stocks of companies that produce this material, or those that use it in vehicles, batteries and related applications. You can also invest in groups of lithium stocks by buying a stake in funds, like ETFs. Alternatively, you can participate directly in lithium with options and futures.

The electric-vehicle (EV) revolution is ushering in a golden age for battery raw materials, best reflected by a dramatic increase in price for two key battery commodities, lithium and cobalt, over the past 24 months. In addition, the growing need for energy storage, e-bikes, electrification of tools, and other battery-intense applications is increasing the interest in these commodities (Exhibit 1).

However, recent concerns regarding the future of the raw-material supply availability for batteries and the impact of rising commodity prices on battery production costs have highlighted risks that might create divergent futures for these two commodities. The strategic response needed will likely differ across industry players such as automotive OEMs, battery manufacturers, mining and refining companies, and financial investors. For all players, there is a growing imperative to understand the complexities and dynamics of this rapidly changing market and to ensure that their strategies are robust in the face of uncertainty. 041b061a72


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