The Lithium Bull Market Isn’t Over Yet

Sean Brodrick By Sean Brodrick, Resource Strategist, The Oxford Club

Metals

I have three charts for you today.

Lately, analysts have been lining up to say that lithium prices have gone up too far, too fast… that lithium is poised for a pullback.

Boy, are they wrong.

Lithium doesn’t trade on an exchange. But within the last month, Galaxy Resources (OTC: GALXF) reported that lithium carbonate spot prices in China  range between $14,500 per ton and $15,100 per ton.

That’s up from the $12,000 per ton Sociedad Química y Minera de Chile (NYSE: SQM) reported in the third quarter. This suggests China spot prices have moved up again recently.

The point is, prices are continuing to move higher. And while lithium may not trade on an exchange, Galaxy Resources does. You can see what’s happening to its share price in the chart below.

And Galaxy isn’t even a big lithium producer.

There are four big companies in the lithium business: Sociedad Química y Minera de Chile (SQM), Albemarle, FMC Corp. and China’s Tianqi Lithium. Three of them can be tracked on major U.S. exchanges. Let’s see how they look.

They all had a heck of a 2016! In the past year, Albemarle clocked a gain of 87%, SQM rallied 82% and FMC rose 65%.

And that’s chump change… An Australian-listed miner, Birimian, just sold a lithium deposit in West Africa to a Chinese buyer. The price was almost 2,000 times what it paid less than a year ago! TWO THOUSAND TIMES!

So what is going on? Well, it’s supply and demand. Another lithium junior, Orocobre (OTC: OROCF), keeps track of new supply coming on the market, as well as a forecast of future supply.

The blue line is best described as a base forecast. The middle red line includes the latest ramp-up in sales of electric vehicles. And the green line is an even faster growth in demand from electric vehicles that may happen.

Even in the best case, lithium supply can barely keep up with demand for batteries for electric vehicles in 2017. And let me tell you something about mines. At least a third of the time, something goes wrong. “Ship happens” is not just a phrase for the maritime industry.

So yeah, we’re looking at a potential undersupply of lithium that could squeeze prices sky-high.

Speaking of batteries…

The big news is that Tesla’s massive Nevada Gigafactory is churning out batteries. Woo-hoo! That’s just 30 months after the first shovel hit the dirt. That’s very impressive.

Tesla’s Gigafactory is building custom-developed “2170” battery cells (named after the dimensions of each battery) that will be installed in battery packs for all Tesla’s products, including the Powerwall 2, Powerpack 2, Model S, Model X and upcoming Model 3.

The production of the Model 3 is scheduled to begin late this year. But Tesla being Tesla, it will probably happen early in 2018.

Tesla says that in 2018, the facility will produce 35 gigawatt-hours per year of lithium-ion battery cells, enough to build batteries for 500,000 Model 3s. Tesla aims to ramp up to 150 gigawatt-hours’ worth of batteries per year, enough for 1.5 million cars.

You may also have heard that Tesla may miss its sales forecast by a few thousand cars this year. Big deal. The Tesla Gigafactory is just one of 13 massive lithium battery factories that are built or are being built around the world.

And that’s why the Chinese are willing to pay top dollar for good lithium projects. It’s not just a surge in demand that is coming. It’s a freaking tsunami!

And I don’t think you should wait too much longer to invest.

Good investing,

Sean