Lithium stocks close to the bottom, it’s time to revisit a sold-down sector

6th December 2019
Resources Rising Stars

It’s not easy being a lithium enthusiast when the price of the material has dropped by 65 per cent in less than two years and the share-prices of mining stocks exposed to the battery metal have fallen further, and in some case the business has simply collapsed (reports Tim Treadgold on Stockhead).

But that negative view of lithium is poised to change in the new year with early signs of a bottom forming in the market thanks to a revival in demand for electric vehicles (EV) in a market other than China, which has been the lithium driver, until now.

Europe, according to a significant research report by Macquarie Bank, is picking up the slack left by a sharp decline in demand for EVs in China and, as every investor with an interest in lithium knows, it’s EV sales which determine battery-metal demand.

The return of European EV buyers appears to be cancelling out the slack created by a sharp fall in Chinese sales after the government in that country slashed financial incentives designed to encourage car owners to make the switch from fossil-fuel power to an EV.

A shift between market drivers is nothing new in commodities with countries regularly swapping places in terms of leadership but what’s interesting with lithium, and a reason to be optimistic, is that it is a commodity starting to enjoy the effects of strong industry and government backing.

It might be early days to predict an industry-wide lithium uplift, if only because there are stalled projects waiting to plug any supply gaps, but if EV uptake forecasts are a guide, 2019 could be lithium’s low point and 2020 the start of a sustainable recovery.

If that forecast is correct then investors exposed to stocks such as Pilbara Minerals (ASX:PLS) (down 77 per cent in less than two years), Galaxy Resources (ASX:GXY) (down 79 per cent over the same time) and Orocobre (ASX:ORE) (down 66 per cent) might claw back some of their losses.

What Macquarie saw in its latest dive into the lithium sector, via a close look at global EV sales, is an industry continuing to grow despite the collapse in Chinese sales.




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