By Konstantin Ogurchenkov, analyst, Casey Research

Lithium was the best-performing metal of 2021.

It eclipsed solid gains of:

  • Aluminum +42.2%

  • Zinc +31.5%

  • The S&P Goldman Sachs Commodity Index (GSCI) +37.1%

The last index follows 24 major commodities, from gold to wheat. Lithium’s rise left them in the dust.

It gained 486%, reaching $39,250 per tonne of lithium carbonate (or LCE).

Any investor would be more than happy with a gain like this…

Yet, many would worry about the future price direction. After all, corrections usually follow big returns.

However, my research shows that the lithium rally is far from over…

If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.

I’m Konstantin Ogurchenkov, and I’ve been a Casey Research analyst since 2015. I’ve worked under great newsletter editors and investors like Louis James, Doug Casey, and for the past several years, Dave Forest and John Pangere. (In fact, Dave and I are neighbors.)

I’ve learned a lot from them. And now, I want to share some of the profitable knowledge and analysis expertise I’ve developed by working with the greats.

And right now, big profits are still ahead for lithium.

Strong Fundamentals

All industrial metals are sensitive to supply and demand. Market balance is a core concept of price making.

If supply outpaces demand, prices fall. That’s because metal makers then must compete and lower prices to secure buyers.

And if demand is stronger than supply, well… prices rise. In this case, buyers chase metal makers and often pay a premium to secure a product.

That’s why lithium prices gained so much last year.

Demand outpaced supply, causing a shortage in the market. It wasn’t a huge deficit: only 6,000 tonnes of LCE. But it was a big change over 71,000 tonnes of surplus LCE in 2020.

And enough to make a giant 486% gain in prices of the underlying metal.

The main driver behind the surging demand is lithium battery usage.

Electric Vehicles and Lithium

See, it’s almost irrelevant what kind of battery electric vehicle (EV) makers use today:

  • LFP (lithium iron phosphate)

  • NMC (nickel manganese cobalt)

  • NCA (nickel cobalt aluminum)

  • And more…

All of them have lithium in one part of the battery. The cathode always carries some lithium in it.

Chart

And its share doesn’t vary much based on the battery type. It’s about 7% on average.

No matter what kind of EV ends up selling best, lithium continues to benefit.

For now…

More Demand Coming

In the future, the lithium market will face another challenge, when the second part of the battery (anode) starts using lithium.

Here is the projection from Bloomberg:

Chart

Starting in 2025, these anodes will begin adopting lithium. By 2035, lithium may account for 32% of the anode’s weight.

The anode market can stay quiet for a couple more years. But then it will explode. And I think battery makers won’t wait for prices to go higher. They will secure supply today, while they can.

It will be either long-term supply contracts or physical stockpiles.

France is already doing this:

Chart

The country plans to put $1.1 billion into the supply of critical metals, including lithium… just to make sure it has enough to keep the economy running.

EV Sales Set to Rise 1,000%

That’s because by 2040, EV sales are set to go up over 1,000%. Bloomberg estimated global EV sales will reach almost 66 million per year by 2040.

By this time, over 878 million EVs (and hybrids) will be on the roads. And each of them will need lithium in every single battery…

While the demand side of the story looks busy and promising, not all the fundamental drivers come from there.

Supply is also a big piece of the puzzle.

It takes a while to develop a mine. It is easily a decade from early-stage fieldwork to the mining phase. Only then can lithium get into battery plants.

This doesn’t happen overnight… And each new project is vital for the market. Any setback will drive metal prices higher.

Like in Serbia, where a major $2.4 billion lithium project faced protests. Its start-up is now delayed by a year to 2027.

It may get even worse, and the lithium supply chain may lose a vital asset. If that happens, we’ll most likely see another gain in metals prices.

Because EV makers will fight for their lithium supply…

Our Way to Profit

All of these drivers support lithium prices going forward. And we still have time to gain from this trend.

The Global X Lithium & Battery Tech ETF (LIT) is a simple way to invest in the lithium trend.

The ETF holds 41 lithium-related stocks and manages $5.3 billion with a 0.75% total expense ratio.

Let’s gain,

Konstantin Ogurchenkov
Analyst, Casey Research

P.S. At Casey Research, we prefer hand-picked stocks that outperform the market.

We’ve foreseen big gains in lithium prices way before the news hit major networks.

Our subscribers had the chance to book triple-digit gains… on three different companies… on our lithium picks last year.

In times like this, when the market is down, it can be the best time to get into sectors like this. You can check out a subscription here.