Worth a read as a reminder that AGY is way I head of many of the...

Worth a read as a reminder that AGY is way I head of many of the pack.


Now, let’s shift gears to another commodity…lithium.

Over the last month, this sector has been thumped.

Last year’s ASX darlings,Mineral Resources [ASX:MIN]andIGO [ASX:IGO],have been hammered with solid 30% declines this year…for the explorers and developers, losses have been worse still.

So, why are investors rushing for the exits on last year’s hottest stocks?

Well, there’s a little more to this story than just a falling commodity price…that’s what I’m attempting to unpackage today.

I believe the root cause of the negativity stems from wholesale buyers in China…the world’s most important market for lithium.

Physical traders act as intermediaries between the miners that supply the market and Li-ion battery makers who consume inventories.

Wholesalers want lower prices.

If they expect the commodity to fall, they’ll destock and clear out warehouses.

That creates a short-term glut in the market and the appearance of oversupply.

Volatility here has a direct impact on the miners…it’s a key reason why lithium stocks have sold off.

As you can see below, theSprott Lithium Miners ETF[NASDAQ:LITP], made up of the world’s largest miners includingPilbara Minerals [ASXLS],Albemarle Corporation [NYSE:ALB], IGO, andLivent Corporation [NYSE:LTHM]has fallen more than 20% since mid-July.

The ETF is now approaching the major low made back in March 2023.

1	Source: ProRealTime [Click to open in a new window]

But from a technical standpoint, this could be setting up for a major bottom.

To show you what I mean, let’s look at the price for the underlying commodity...lithium carbonate.

Given equities have been under considerable pressure, you’d be excused in thinking the same thing was happening for the underlying commodity.

Except lithium carbonate remains well above its March 2023 lows.

Rather than collapse, the world’s lightest metal is showing signs of consolidating.

A ‘higher low’ from here would certainly strengthen the technical outlook and offer investors a reason to turn more upbeat on lithium stocks.

It’s why I’ll be keeping a close look at the futures chart as we pinpoint the direction of this sector for the remainder of 2023.

1	Source: Trading Economics [Click to open in a new window]

But turning our attention to the fundamental side offers solid evidence that the fortunes of lithium miners could be about to turn.

Nearly 300,000 new electric vehicles (EVs) were sold across the US in Q2 2023, a record for any quarter.

It represents a staggering 48% increase from Q2 2022.

But perhaps more importantly, sales are booming in China according to the latest analysis from Deutsche Bank.

See for yourself below.

1	Source: CnEVPost Company Reports [Click to open in a new window]

According to one of China’s largest EV firms, Li Auto, 2023 is defying expectations.

In its latest sales update, the company announced (emphasis added):

‘Delivery of 32,575 vehicles in June 2023, surpassing the30,000 monthly delivery mark for the first timeand representing anincrease of 150.1% year over year.

‘This brought the company’s second-quarter deliveries to 86,533, up201.6% year over year.

‘The company hasalready surpassed its total vehicle deliveries for the entire year of 2022with its deliveries in thefirst half of 2023.’

There’s nothing here to suggest demand will drop for lithium…Li Auto’s sales growth (blue line above) is rocketing this year.

EV sales growth matters for lithium miners

As you might recall, I’ve described lithium as a ‘one-hit wonder commodity.’

That’s because demand is exclusively tied to one thing…EV sales.

With purchases booming in the world’s two largest economies, the demand for lithium will surge.

Yet some analysts suggestsupplywill dent the outlook this year. This suggests that higher output will start to flood the market before the end of 2023.

However, that doesn’t align with the realities on the ground.

The mining industry is facing a perfect storm of rising construction, finance costs and extreme staffing shortages.

Emerging producers will continue to experience delays and technical hurdles in building out their downstream capacity.

That’s why I don’t buy into the oversupply threat (just yet).

As an investor looking to enter this market, your best bet is to focus on established producers.

Those companies are already holding the infrastructure and downstream capacity…

That’s a major competitive advantage and possibly the best way to play any future recovery.