There is no doubt that lithium is a hot topic right now, especially when there are images of exploding scooters, EVs and other similarly powered devices in the news every week. However, lithium is more than something that is just prone to spontaneous combustion. So this week, we’ll look at this highly popular and, dare I say, hotly debated topic.
I will also review some Australian lithium stocks to determine whether there are any real opportunities right now or if all the talk is just another overhyped story best left for discussions around the dinner table.
An interesting story
The lithium carbonate futures price chart tells an interesting story, especially given all the hype around lithium in recent years.
The last thing most would have expected is that the price of lithium has fallen 75% in the last 12 months, but the good news is that any market that has fallen heavily is worth investigating.
So, why is lithium popular yet falling heavily?
Lithium is used in many industries, including electric vehicles and energy storage systems, and we all know that the world is moving towards an all-electric future. As such, the potential gain means holding lithium stocks is well warranted, especially since experts such as Statista are forecasting global lithium demand will surpass 2.4 million metric tons, doubling the 2025 forecast. Bloomberg also predicts a nearly fivefold increase in lithium demand by the end of the decade.
The challenge for lithium is that we are constantly finding new and better ways to produce and store electricity, especially in the renewable energies space, so the risk of being superseded by a new technology, such as sodium for example, is a major concern for the commodity.
It's not the first time I've seen a market move in the opposite direction to the hype, and right now, lithium stocks are down 70% or more from their all-time high, except for Pilbara Minerals Ltd (ASX:PLS).
Pilbara happens to be the largest player in this space and has risen over 4,000% since the March 2020 low. More recently, it has only fallen 35% from its all-time high, which suggests there is strong interest in this stock.
If the price of lithium catches up to its hype, Pilbara is one stock you should take a very close look at, especially if you want exposure to this commodity in your portfolio.
As for the other stocks in this space, I would stay away until the price of lithium is well and truly rising; otherwise, you might just be catching a falling knife.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au