Lithium has been a commodity that has been at the center of the global news cycle in 2022. Lithium prices have surged by almost 500%, with demand continuing to increase from electric vehicles and other technological devices such as smartphones. However, lithium stocks have retreated recently due to analysts forecasts that predicted lithium prices will fall aggressively into 2023. Regardless, the forecasts are currently proving to be incorrect, which could provide investors with an opportunity to buy the dip.
Lithium continues to witness strong demand and a shortage of supply
Lithium demand continues to fuel a short supply of lithium, leading to a deficit pegged at around 8000 MT, and lithium prices continue to be under pressure. EV sales increased by 108% in 2021 to 4.2 million units and are expected to rise by a further 30% in 2022. Tesla is expected to be the main contributor to EV sales. Still, multiple car companies are expected to either bring new models onto the market or increase production for the year. Analysts' forecasts were based on the assumption that as the price of EVs surged due to a surge in lithium prices it would lead to a fall demand for the vehicles themselves, and when combined with excess supply, lithium prices would retreat as well. But, with the price of energy at record levels, demand for electric vehicles remains strong, and supply also continues to be tight .
The price of lithium has increased to $70/KG, from 18/KG in 2021 but could fall to around $50/kg should demand wane. Currently, there is little indication demand is going to wane, with demand from markets such as Europe and China continuing to remain elevated. High energy prices have become an issue in places like Europe, where the cost of owning a car continues to rise. As a result, many consumers have decided to switch over to EVs. Further adding to demand is that the average age of vehicles on the road is now at a record high as well. While some consumers are responding by buying second-hand cars, many choose to opt for EVs, despite their rising costs.
Therefore, with everything going on, lithium prices will remain elevated. And as a result of the elevated prices and supply shortages, lithium stocks could continue see positive returns. On the other hand, if the global economy were to slow down and energy prices were to retreat, demand for lithium could also fall. But for now, the environment remains favorable.
Lithium stock you can consider for your portfolio
Livent (NYSE: LTHM)
is an integrated lithium-producing company. It provides a range of lithium-based products, including lithium carbonate. The company is a critical player in the lithium battery industry and has the likes of BMW as its customer. Livent is expected to significantly ramp up production in 2022, bringing in revenue of around $800 million for the year. Management has also stated that it expects an EBITDA of around $300-350million. During the first-quarter net profit came in at $54 million, with earnings per share (EPS) coming in at 24 cents. Management expected total profitability for the year to be around $200-250 million, and EPS could be around 1.10. Therefore, the forward P/E for the stock is expected to be around 20-25x. Livent has made numerous acquisitions throughout the year and expects to increase production through 2023 to meet customer demand. Considering the outlook for lithium remains high, the company is firmly situated to take advantage of the surge in lithium demand. Albermarle Corporation (NYSE: ALB)
is a specialty chemical company and the largest provider of lithium-ion batteries globally. It operates two major mining facilities, one in Chile and another in Nevada, United States. It also has a 49% interest in an Australian lithium mine. Albermarle considers the likes of Panasonic and Samsung as its customers. The company has significantly benefited from the increase in demand and expects a significant increase in earnings for the year. Revenue came in at $1.1 billion during the first quarter, representing an increase of 44% y-o-y. Net income is expected to come in at $1.3-1.5 billion for the year, and the company currently trades at a forward P/E of 17x. Management expects to double capacity over the next couple of years, from the current 88 metric tons LCE, which should help Albermarle meet demand and translate into solid revenues during 2023, and 2024 as well. Overall, the company should continue to see strong returns as it takes advantage of the current climate.
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