Lithium is a hot commodity. The numbers speak for themselves: over the past two years, the price of the soft silvery metal has increased by more than 300%.
And this is justifiable. Lithium is, after all, one of the main ingredients in lithium-ion batteries.
But lithium-ion batteries have been around for decades, and the demand for the metal has remained relatively low.
So what's causing the market interest now? Electric cars, that's for one. Smartphones are up there too.
It may seem well and good that the demand for lithium is increasing because more electric vehicles mean fewer greenhouse gases (that's China's thinking), but not everyone has this mentality.
There are a lot of people out there talking about the shortage of lithium. Not to mention that the expansion of output could lead to lithium prices falling to around $10,000 a ton.
Despite the recent writing about a glut of lithium supply, there are investors who remain bullish on the metal. They argue that the lithium space has been on fire the past few years, so demand is expected, but even then, there isn’t enough reason to start worrying about a glut of supply.
Glut of Supply in the Lithium Industry: Should We Worry?
Even though there are places like the Smackover Formation in Southern Arkansas, which is thought to be the lithium space’s most promising area to develop, the bears have said that there will soon be "severe oversupplies” in the lithium space.
As a result, some have stuck to focusing on traditionally powered cars, knowing that there is "uncertainty" in the lithium market.
These investors believe that because expectations are high, the sector has raised a considerable amount of capital, and there is the increasing demand for the metal, things will eventually take a turn for the worst.
Over the next 5-7 years, demand for the metal is forecasted to grow by roughly 400%. When the demand shoots up like this, industry leaders say new projects will be forced to come online.
While bulls acknowledge that 400% is a lot, they remain unworried. Reportedly, it doesn't make sense, and these predictions do not take everything into account.
The Argument Against the Lithium Worries
According to the bulls, investors claim there will be a glut of supply because of these new lithium projects, and when multiple companies start production. What they don't understand, however, is that there is no guarantee that any of these projects will ever see the light of day. To do so, they have to get permitted, get built. And even if they do accomplish these things, the glut forecasts are still assuming these projects will be executed on schedule.
Sounds accomplishable, but the lithium industry has a reputation for not meeting expectations.
Moreover, glut forecasts, the bulls say, do not take into consideration "logistical bottlenecks" nor do they account for fund-raising and how this can sometimes delay new projects.
Numbers Don’t Lie
Either way, the demand for lithium is going to continue to rise. We can thank China for that, being the center of the lithium boom. By 2025, electric cars might make up 12% of the vehicles produced. For this to happen, these vehicles will require lithium. But for right now, many investors remain confident that we aren't moving toward an imminent supply/oversupply situation.
The Takeaway
What do you think? Is a glut of supply in the lithium space on the horizon? Or are investors getting ahead of themselves and making assumptions? For instance, should investors being considering logistical bottlenecks?