Lithium Miners Ride EV Demand

Prices for Lithium Carbonate Surge

Albemarle (ALB) and Livent (LTHM) are two lithium miners sporting lofty valuations. Demand for lithium-based chemicals used in rechargeable batteries is soaring, sending prices surging. Lithium carbonate, one of the compounds needed to make batteries for electric vehicles, cost $14,386 per metric ton in August. In December it was $6,124 per metric ton. Meanwhile, forecasts call for the market to more than double in size from 2021 through 2025.

That was not always the case for the lithium miners. Back in 2018, prices for carbonate reached a high of $17,000 per metric ton only to fall in a boom-and-bust cycle. This time the EV market is red-hot with most vehicle markers churning out electric vehicles.

Miners Pour Money Into the Market

While history has a tendency to repeat itself, miners are pouring billions of dollars into the market. Albemarle recently raised $1.5 billion to bankroll expansion, while Rio Tinto (RTNTF), the diversified mining company, is spending $2.4 billion on a Serbia lithium project. Investors do not appear to be too concerned about a boom-bust cycle either. Albermarle is trading at 51 times earnings while Livent is at 89 times earnings.

While lithium itself is not in a shortage, low cost supplies of it are. As it stands, lithium is mainly mined in Australia or in the Andes and requires a conversion process to produce the chemical compounds that can slow down production. Because lithium plants take two years to mature, prices are likely to remain high and supply will stay tight for some time.

Competition Causes Challenges

A challenge facing lithium miners is the industry’s reliance on China, which controls the processing aspect of production. That requires companies like Albemarle to continue to invest in conversion facilities in China. It is why the valuations of Ganfeng Lithium (GNENF) and Tianqi Lithium , the Chinese producers, have surpassed Albemarle in stock market value.

Albemarle and Livent also face the prospect of more competition in the US. With semiconductor shortages causing massive delays in the supply chain, vehicle manufacturers are looking for several sources for key components. That could prompt partnerships with local miners. Tesla (TSLA) already inked a deal with Piedmont Lithium (PLL) and General Motors (GM) is investing in a lithium project in California. The lithium miners are no strangers to boom-and-bust cycles, but this time may be different given strong demand for EVs.

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