How Negative News Could Be A Positive For Lithium Stocks

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The demand for lithium has been amplified due to the delays in new supply projects.

This is good news for consumers but unfavourable to the far-reaching ambitions of electric vehicles.

Few Australian investors likely track the movements of German Chancellor Olaf Scholz, his latest trip to South America highlights a burgeoning rivalry in the race for one of Earth’s most sought-after resources: lithium.

Scholz has joined forces with Argentina to acquire lithium supplies for the German industry. Then on Sunday, he travelled to Chile – the second leading supplier of lithium next to Australia – hoping that a similar bargain could be achieved.

China’s battery production industry is monopolising the world’s lithium resources, so it is no surprise that Germany—home to car giants like VW, who aim to invest $80 billion in electric vehicles by 2026—is eager for a portion of this pie.

The substantial rise in ASX-listed lithium stocks since January – Pilbara Minerals at 35%, Mineral Resources at 23%, and Liontown Resources at 32% – can partly be attributed to renewed global optimism but also due to fresh evidence which infers that over the next decade, there could even more need for lithium than anticipated.

The Biden administration’s Inflation Reduction Act has been a significant factor in the upsurge of Albemarle’s demand outlook, as it incentivizes renewable energy and battery production. The skyrocketing electric vehicle production is driving their projections forward- from 11.2 million units this year to an estimated 46.9 million by 2030.

Many industry experts consider Albemarle’s new lithium demand prediction to be optimistic. Benchmark Intelligence forecasts a more modest 2.4 million tonnes of demand in 2030, which according to CEO Simon Moores, is still likely to exceed supply – with the research house expecting only 2.1 million tonnes of supply by that time.

Supply response will lag demand, resulting in a market deficit and elevated lithium prices. In addition, we believe the capex upgrades could also shift the cost curve upwards, translating to higher lithium prices in the long term.” On a company-wide basis, Macquarie observed.

Last month, Pilbara Minerals decided to expand their budget by 36%, while Allkem recently announced a setback on their Sal De Vida project in Argentina. Mineral Resources’ expansion of Mount Marion in WA was delayed for six months last week.

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