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Lithium Outlook 2022 And Sector Darling Lithium Americas

June 26, 2022

price of lithium has been in uncharted territories in 2021 and 2022. Lithium has been constantly making new all-time highs. This simple fact makes it very hard to forecast the price of this sought after commodity. In this article, we discuss our Lithium outlook as a follow up on ourLithium market forecast for 2022. Are we still on track for a solid close of 2022 in Lithium stocks? Did the price of Lithium peak in 2022 and is the upwards move now done? How is Lithium America stock price, $LAC, holding so far?
Lithium Outlook 2022 – How Is Price Performing So Far?

Below is a quote from our Lithium forecast 2022, it illustrates Lithium’s price action so far:

We expect lithium stocks to outperform the market again in 2022 but they will move in a very cyclical way so buy the dip is the right approach
We also added:
But the mega secular bull market in lithium stocks is not over yet, far from it, as explained in our green battery metals forecast for 2022. It is even not halfway according to us. It is rather clear from the charts that some lithium stocks might be taking a breather to recharge themselves but they will continue to perform well in 2022.
Published in November 2021, the outlook was a spot on call and we are currently in the dip period. But why do we believe this is a dip and not a reversal? Let’s start by taking a look at the key factor driving the price for this commodity: Supply and Demand.

Outlook For Supply And Demand For Lithium

The outlook for the demand for Lithium remains Bullish. If we were to only consider the growing demand for Lithium batteries from mobile devices, electronic vehicles and storage devices, that’s more than enough to keep the price levels higher for a while. Rechargeable batteries use up more than half of the worlds Lithium supply.
As we want to remain objective and factual, we collected the following data points showing how demand for Lithium is set to keep growing till at least 2028 -2030.

China, Japan and South Korea being the Top 3 Lithium importers, let’s see what the outlook for their Lithium market looks like for the next few years: Based on the chart below, they are set for years of continuous growth.

Trading Economics forecasts an increasing spot price as well following the current temporary dip. They also see the price back to previous ATH by end of the year.
Trading Economics provides Lithium pricing based on spot prices for Lithium Carbonate, 99.5% Li2CO3 min, battery grade, traded in China. Lithium is a silver-white light metal. Lithium hydroxide is used in batteries for electrical vehicles and mobile phones. The latter is produced from a chemical reaction between lithium carbonate and calcium hydroxide. The biggest lithium producers are Chile, China, Australia and Argentina. The largest lithium importers are China, Japan, South Korea and the United States.

In terms of performance, Lithium clearly outperformed compared to other metals and is still green for the year.

What Does The Supply Side Look Like for Lithium?

On the supply side, the pandemic’s lockdowns measure, global shipping and logistics issues definitely put pressure on Lithium’s supply. But this supply shortage is likely to continue for years if not decades for a multitude of reasons:
Environmental regulations
Lengthy qualification process
Therefore, miners such as Lithium Americas $LAC are forecasting a supply gap heading into 2040. As new miners start producing, they still forecast that the demand for Lithium is strong and that it will likely continue to increase.

Last but not least, Fortune business insights is expecting Lithium’s global market size to go from $3.64 billion in 2020 to $6.62 billion in 2028.
Based on the findings above, the demand for Lithium is here to stay and the supply is nothing close to covering that demand till possibly 2040. These findings corroborate our Lithium outlook: Higher Lithium stocks prices in 2022 and every dip is a buying opportunity.
Lithium Price: When to buy the dip?

Successfully buying the dip in Lithium stocks will have to be based on the following:
The charts. Whatever your investment choice is to play this sector, you want to tune out the noise and focus on charts and price action. We are putting together for our readers an article about when to buy the pullbacks that could be helpful. This will be particularly interesting if you are investing in stocks. Stay tuned.
Lithium contracts. These are usually negotiated in around September to end in December. That could also signal the end of the dip and the resumption of higher Lithium prices.
Interestingly, around mid-may this year, Goldman Sachs analysts published their Lithium outlook. They stated that the bull market for Lithium is over for at least a few years. Shortly after Credit Swiss published a similar outlook. But as the spot price is currently retracing the recent contracts are breaking records for Lithium price. A good example is the recent Pilbara minerals securing contracts around 6% higher than last month’s prices. Again strong demand low supply driving prices and most importantly, the contracts are closing way higher than the spot price. This leads us to think that most Lithium miners are currently undervalued.
This is a situation where the price of assets is clearly disconnected from the fundamental value. As investors, spotting this type of disconnect, pairing it with proper price action analysis and risk management is key to scoring strong returns. It takes lots of research, discipline and most important patience. This is at the core of our momentum investing strategy and Lithium is definitely part of our select sectors.

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"In terms of performance, Lithium clearly outperformed compared to other metals and is still green for the year."

Looks like Lithium has turned out to be the best inflation hedge so far lol.