Lithium: Does rising demand mean rising prices?

It is generally accepted that lithium demand will grow significantly over the next 10 years, driven by both increased penetration of electric vehicles (EVs) and increased storage capacity from renewable energy. A fairly natural outcome has followed on from this, in that, as the full scale of potential future lithium demand has emerged the valuations of lithium-producing companies appear to be on an ever-increasing trajectory.

However, more recently there has been some share price weakness which has prompted reassessment of the investment case. Edinburgh Partners’ analysts covering the Automotive, Battery Technology, and Metals & Mining sectors have collaborated to produce a long-term supply/demand study to examine the key commodity pricing environment under a range of different assumptions.

This is a follow-on from a large-scale research project on renewable energy and battery technology and provides a framework for monitoring share prices in order to flag when these companies might provide attractive opportunities for investment. It is an area where great care is required since, whilst the trend of growth is relatively clear, there will continue to be sustained periods where profit potential may be exaggerated. Some of the key points are discussed further below.