Lithium (Li) is a lightweight metal primarily used in the cathodes of lithium-ion batteries used in EVs. Lithium and its compounds have different applications in industrial usage, for instance: heat-resistant glass and ceramics; lithium grease lubricants; flux additives for iron, steel, and aluminum production; lithium metal batteries; and lithium ion batteries. Australia holds the top position as the largest producer, contributing more than 50% of the world’s lithium production, as per the Australian Government. Australian minerals are catalyzing the global mineral energy transition, with lithium production at a record high, according to Australia’s Identified Mineral Resources (AIMR) report on March 6, 2023. The objective of low-carbon power generation to achieve climate goals also means a tripling of mineral demand. The lithium industry’s primary concern was inadequate investment. As investors started focusing more on its recent past developments in the sector, it has been observed to have seen lithium prices soar since 2021 on the back of booming global electric vehicle (EV) sales. The mine productions of ‘spodumene’ are forecast to rise from 3.1 million metric tonnes by 2023 to 3.4 million metric tonnes by 2024 and 4 million metric tonnes by 2025. Rio Tinto Limited (ASX: RIO) recently partnered in two lithium exploration projects in Quebec, and greenfield lithium exploration continues in Canada, Australia, the US, and Africa. ‘Lithium carbonate equivalent (LCE)’ is expected to produce 452,000 MT in 2023, 507,000 t by 2024, and 596,000 t in 2025.
Risks to the lithium price forecasts are balanced over the outlook period. While expansions to production are already underway in Australia and overseas, there are long lead times for lithium mine operations. Moreover, the potential for delays in bringing such large volumes of lithium into production means the risk of persistent supply shortages over the next few years remains visible.
Why ASX Investors Should Buy Lithium (Top Reasons)?
The demand for lithium is accelerating as the sentiments for electrical vehicle consumption are spearheaded globally. The overall demand for lithium is expected to reach 1.5 million metric tonnes of lithium carbonate equivalent by 2025 and over 3 million metric tonnes by 2030. By 2040, as per the ‘International Energy Agency’, lithium demand will outpace supply by more than 40-fold, besides keeping a target to achieve the Paris Agreement Goals’. Lithium demand is expected to be in the limelight as global countries have dedicated themselves to pursuing carbon neutrality, boosting EV consumption, and energy storage systems. On a long-term perspective, ASX stocks have the potential to generate returns for common shareholders.
Best Lithium Stocks of September 2023
Australia is well known for its massive resource availability and contributes significantly to global lithium production. Here are the best lithium stocks someone may look into studying:
Pilbara Minerals Ltd. (ASX: PLS) is a leading lithium and tantalum producer focused on the development of its wholly owned Pilgangoora Lithium-Tantalum Project, situated in the Pilbara region of Western Australia. The company currently has a market cap of $13.59 billion as of September 8, 2023, in the basic materials sector.
Mineral Resources Ltd. (ASX: MIN) has a market cap of $13.48 billion as of September 8, 2023, under the basic material industry. MIN is a mining services company with a portfolio of mining operations across lithium and iron ore that has been providing safe, high-quality, low-cost mining, mining construction, and mining infrastructure services in Australia.
Liontown Resources Ltd. (ASX: LTR) has a market cap of $6.65 billion (as of September 8, 2023) in the basic material sector. LTR, an exploration company and tier 1 battery minerals producer, engages in development and supply as required by the rapidly growing EV and energy storage industries at its two major lithium deposits in Western Australia.
Latin Resources Ltd. (ASX: LRS) has a market cap of $821.65 million as of September 8, 2023. It is a mineral exploration company with several mineral resource projects in Latin America and Australia. In Latin America, the company's focus is on its two lithium projects, one in the state of Minas Gerais, Brazil, and the other, the Catamarca Lithium Project, in Argentina.
Are Lithium Stocks a Good Investment?
Overall, commodity markets have started correcting after a record high in 2021. Lithium prices have also correlated with the market trend and corrected from their peak and exorbitant valuation.
Generally, commodity markets are cyclical in nature; therefore, correction has been there, due to part of it after so many years of strong growth.Post-2022 March, central governments all over the world have raised interest rates significantly, which has contributed to the overall declines in the stock market as a whole.
The accelerating demand for electric vehicles and other electronic goods is expected to grow rapidly, which could mean good things for lithium stocks, even if they go down from time to time.
Frequently Asked Questions (FAQ)
How has the lithium market on the ASX performed recently?
The ASX 200 index has delivered approximately 4.72% absolute 1 year return; in comparison, lithium ASX shares such as RIO have outperformed the market index and potentially generated a return of approximately 20.22% (YTD as of September 8, 2023). The LTR has generated a return of approximately 63.51% (YTD as of September 8).
What factors affect the price of lithium stocks on the ASX?
There are so many factors that influence the value and performance of lithium stocks, such as demand and supply of EVs and renewable energy. Other factors, such as technological advancements, geopolitics, and environmental concerns, also act as catalysts to drive fluctuations in the lithium stocks on the ASX.
Are lithium stocks good investments for the long term?
Lithium mining businesses have the credentials for potential upside. Someone looking for long-term investments may sense the world's inclinations towards the clean energy drive. Risks to the lithium price forecasts are balanced over the outlook period, while expansions to production are already underway in Australia and overseas as well.
What are the top lithium mining companies listed on the ASX?
Here are the top lithium mining companies in Australia, as follows:
Rio Tinto Limited (ASX: RIO) is engaged in mineral and metal exploration, development, production, and processing. Pilbara Minerals Limited (ASX: PLS) is an emerging lithium and tantalum company. Mineral Resources Limited (ASX: MIN) is a mining services company with a portfolio of mining operations across lithium and iron ore.
How do I analyze lithium stocks and their financial health before investing?
The basic material sector is basically a capital-intensive sector, which requires strong cash bases to run the operation. Lower operational expenses and higher operating income are very much needed for the financial health of the company. Operating cash flows supporting the core business operations must be visible. Look at the cash flow numbers; that is pivotal for better operational quality.
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