How to play The Comeback in Lithium

The long-suffering lithium sector is enjoying a rare boom after the mining giant Rio Tinto Group (NYSE:RIO) announced a $6.7 billion deal for Arcadium Lithium Plc (NYSE:ALTM), good for a hefty 90% premium to its Oct. 4 closing price. Both boards of directors unanimously approved the merger, with the deal expected to close in mid-2025. Arcadium Lithium was formed in January 2024 following Merger equals $10.6 billion between the US headquarters LIVENTA and Australia Alchemy.

Shares of Arcadium Lithium have nearly doubled since the merger was announced; Albemarle Corp. (NYSE:ALB), the world’s largest lithium producer, gained 9.4%, MP (NYSE: SQM ) rose 7.9%%, Standard lithium (TSXV: SLI , NYSE: SLI ) gained 39.2% while Lithium Americas Corp. (TSX: LAC, NYSE:LAC) rose 6.7%.

The acquisition is seen as a major win for Rio Tinto, which has struggled to gain traction in the lithium market after its Jadar project in Serbia faced local opposition. This means Rio Tinto now holds the world’s third-largest lithium reserve, second only to Rio Tinto Corporacion Minera de Boliviaalso known as COMIBOLand sq.

But markets will be watching Albemarle much more closely now. Its strong performance in Q2 was impressive given the extremely fragile nature of the lithium market. Despite these conditions, ALB was able to increase lithium sales volumes and the outlook was very bullish, with ALB forecasting prices of $15 per kilogram. Pressured by falling lithium prices, a weakening electric vehicle market and oversupply in China, ALB has taken a beating, falling 45% year-to-date. This makes this stock a potential buying opportunity in the market, especially following Rio Tinto’s developments.

We could be in the midst of a lithium tipping point here, and if that’s the case, Albemarle has its ducks lined up in a neat row.

Turning point

That said, the rally in lithium started long before the Rio Tinto merger. The ETF Global X Lithium & Battery Tech (NYSEARCA:LIT) is up nearly 30% after hitting a 3-year low exactly 30 days ago.

The recovery coincides with growing predictions that lithium prices may have bottomed out. A month ago, Citi analysts raised their short-term price targets for lithium carbonate to $14,000/tonne and lithium hydroxide to $14.2K/tonne, from a previous forecast of $10,000/tonne for both products, predicting a short term. lithium prices rise as investors cover their short positions. However, Citi added that over the next 6-12 months “the rally is not expected to have “follow-through” as higher prices could very well trigger a supply response that could weaken lithium stocks.”

Lithium carbonate rose to CNY75,500 ($10,663) a tonne, after hovering at a three-year low of CNY71,500 ($10,098) through September, as economic stimulus from the Chinese government temporarily countered lingering concerns regarding oversupply. Lithium carbonate prices have fallen 21% year to date, adding to an 80% drop in 2023, driven by a flood of new supply against falling demand for new electric vehicles, lithium’s main use. Still, market players expect global supply to rise nearly 50% this year as hopes of an eventual market balance have driven the race to secure battery metals, prompting China to expand projects in Africa, while Chile signaled that it will aim to double production in the next. decade.

Adding to the bearish pressure are rising tariffs on China’s renewable energy products. Recent, Office of the US Trade Representative (USTR) has finalized its rate hike plan on a host of Chinese goods, largely adopting the hikes it first proposed in May. The expanded tariffs mainly target strategic product categories, including electric vehicles, batteries, solar cells, semiconductors and critical minerals.

The final tariff structure covers thousands of items across 14 product categories, with the first tariff increases set to take effect on September 27 and the remainder over the next two years. And, they’re just as punitive as the Trump era: Chinese electric vehicles slapped with a whopping 100% tariff; a 25% tariff on lithium-ion EV batteries and a 50% tariff on solar PV cells. Meanwhile, a 50 percent tariff on semiconductors made in China will take effect in 2025.

However, other lithium bulls remain standing. BMI, a research unit of Fitch Solutions, has predicted a lithium shortage could hit as early as 2025, largely due to China’s lithium demand outstripping supply.

“We expect an average annual growth of 20.4% year-on-year for China’s EV-only lithium demand during 2023-2032,” the report said. In contrast, BMI sees China’s lithium supply growing at a much slower annual growth rate of 6% over the same period, noting that this rate is not enough to meet even a third of estimated demand.

IMC isn’t the only lithium bull here. “We fundamentally believe in a shortage for the lithium industry. Of course, we forecast an increase in supply, but demand will grow at a much faster rate,Corinne Blanchard, Deutsche Bank’s director of lithium and cleantech research, told CNBC. Blanchard sees a “modest shortfall” of about 40,000 to 60,000 tonnes of lithium carbonate equivalent by the end of 2025, but forecast a much larger shortfall of up to 768,000 tonnes by the end of 2030.

By Alex Kimani for Oilprice.com

And here are a number of other miners to watch this fall:

BHP Group (NYSE:BHP), a global resources giant, features a diversified portfolio that includes iron ore, copper, coal, nickel and energy operations. With a substantial presence in Australia and the Americas, BHP’s operational scale is impressive. The company’s commitment to sustainable practices, including reducing environmental impact and community involvement, further cements its position as a responsible and forward-thinking leader in the global resources sector.

FMC Corporation (NYSE: FMC) Headquartered in Philadelphia, FMC Corporation is a global agricultural sciences company that provides innovative technology to producers around the world and has a significant stake in lithium for rechargeable batteries and other high-tech applications. The company’s agricultural products help increase crop yield and quality, addressing global food security issues. FMC’s commitment to innovation and sustainability has driven strong demand for its crop protection products, supported by higher commodity prices and strong agricultural market fundamentals.

Lithium Americas (NYSE:LAC) has become a major player in the lithium market, driven by the growing demand for lithium-ion batteries in electric vehicles and renewable energy. The company’s Thacker Pass project in Nevada has the potential to be one of the largest sources of lithium in the world, positioning Lithium Americas as a major contributor to the global lithium supply chain. Strategic investments and partnerships with established industry players further enhance the company’s prospects for growth and expansion.

Albemarle Corporation (NYSE:ALB) is a global leader in specialty chemicals, noted for its position as the world’s largest lithium producer. This prominence in the lithium market aligns with growing demand for electric vehicle batteries, a key growth driver for the company. Albemarle’s diversified portfolio of bromine, catalysts and pharmaceuticals demonstrates its adaptability and commitment to innovation across sectors.

Piedmont Lithium Limited (NASDAQ:PLL) is an Australian mining company focused on developing lithium resources in the United States. Its flagship Piedmont Lithium project in North Carolina is designed to produce a substantial amount of lithium hydroxide annually, meeting growing demand for lithium-based products. Piedmont Lithium’s strategic partnerships with industry leaders such as LG Chem highlight its commitment to building a robust supply chain for the burgeoning electric vehicle market.

MP Materials Corp. (NYSE:MP) holds a unique position as the sole operator of a fully integrated rare earth mining and processing facility in the United States. The company’s focus on producing oxides and rare earth metals, critical components in various technologies, is particularly significant given the growing demand for these materials in emerging sectors such as renewable energy and electronics. MP Materials’ vertical integration model ensures the quality and consistency of its products, further strengthening its market position.

Rare Element Resources Ltd. (TSX:RES) is dedicated to the exploration and development of rare earth elements (REEs), crucial components in clean energy technologies. The company’s flagship Bear Lodge project in Wyoming, recognized as one of the largest undeveloped REE deposits in the world, holds immense potential to contribute to the global REE supply. REE’s commitment to sustainable and responsible mining practices underscores its commitment to ethical resource extraction and environmental stewardship.

Avalon Advanced Materials Inc. (TSX:AVL) is a Canadian company specializing in the development and manufacture of special materials for various industries. With expertise in high-purity metals and alloys used in electronics, aerospace and biomedical applications, Avalon plays a vital role in the development of various technology fields. The company’s focus on developing materials for energy storage solutions, particularly lithium-ion and solid-state batteries, demonstrates its commitment to innovation and responding to evolving market needs.

First Quantum Minerals Ltd. (TSX:FM) is a Canadian mining and metals company with a diverse global portfolio. The company’s operations span several countries and include the production of copper, nickel, gold and zinc. First Quantum’s commitment to responsible mining practices and community engagement is evident in its efforts to create economic opportunities and minimize environmental impact in the regions where it operates.

Allkem Limited (TSX:AKE), an Australian mining company, is a major player in the lithium market. Its diverse portfolio of lithium projects in Australia, Argentina and Canada, including a substantial presence in the lithium-rich Salar de Atacama, positions it as a major contributor to the global lithium supply chain. Allkem’s integrated approach to lithium production, encompassing exploration, production and refining, strengthens its role in meeting the growing demand for lithium in the electric vehicle and renewable energy sectors.

Teck Resources Limited (TSX:TECK), a Canadian mining powerhouse, is a leading producer of zinc and copper. Its extensive operations in Canada, the United States, Chile and Peru contribute significantly to the global supply of these essential metals. Teck’s zinc production is particularly notable for its critical role in various battery technologies, aligning with the growing demand for energy storage solutions across multiple industries.