Lithium has gained notoriety in the last few years, the reason for this is it’s a crucial component in batteries. As more of our technological environment becomes battery-powered, mobile phones, laptops, e-bike scooters and now even cars, lithium has become more and more in demand. With global social pressure forcing companies to become more eco-friendly, it’s easy to see why investors would continue to champion lithium as a high-return investment mechanism.
The demand for lithium is rising rapidly, but its extraction process is complex, and large deposits are mostly concentrated in South America, Asia, and Australia. As a result, the demand is expected to outpace supply, leading to a quick rise in its price.
If you are an investor looking to gain access to lithium as an investment vehicle, there are many different ways to consider it.
The most popular way to invest in 2022 was via ETFs which allowed investors to invest in the entire production chain. From exploration and mining to processing and production.
In 2023, it’s predicted that the most profitable way to invest in lithium will be via initial public offerings in innovative companies such as intergroup mining.
Ways to Invest
If you’re interested in investing in lithium, as discussed above there are a few different ways. You can invest in lithium stocks, lithium ETFs, or lithium futures.
Investing in Lithium Stocks
A traditional way to invest in any industry is stocks and shares, lithium is no different. Via the stock market, you can invest in the world’s largest lithium miners, producers and processing companies, such as Albemarle, Livent, and SQM.
As with any investment, it’s very important to do your research and understand the risks involved. Because of production issues, and demand cost fluctuations, the lithium market is volatile. Before finalising a decision on an investment, due diligence and expert advice are absolutely key.
It’s also noteworthy to consider that although large established companies will offer some level of stability, your profits will be levied with their size.
Investing in Lithium ETFs
As mentioned in the introduction to this article, a popular way to invest in lithium is to buy shares in a lithium ETF. ETF is an acronym for Exchange-traded fund and is essentially the same as a mutual fund (a fund containing lots of different assets managed by the fund manager) the only difference is that an ETF can be traded on a major exchange.
There are quite a few ETFs that are available, such as the Global X Lithium & Battery Tech ETF (LIT) and the VanEck Vectors Lithium ETF (LIT).
The reason investors turn to ETFs is that they provide benefits that individual stocks do not. Boasting increased diversification, Security and Stability all of which can effectively lower risk.
Investing in Lithium Futures
Another investment vehicle for lithium is futures. Futures are contracts that give you the right to buy or sell a certain amount of a commodity at a specified price on a future date. Lithium futures in the United Kingdom are traded on the London Metal Exchange (LME).
Investing in futures carries a lot of risk and before acting on a recommendation to invest in them, its of particular importance that investors fully research and understand the risk.
We asked Nicola Buscall of Market Leader New Capital Link for her take on Lithium futures
“Lithium futures are a unique trading opportunity but in our advice, these carry an unparalleled level of risk, estimating how the price will increase over a predetermined period is a very risky proposition. So many factors contribute to demand and cost, that even the most strategic analysis predicting prices in the future carries an element of, for lack of a better word “gambling”
Investing in IPOs
In our opinion, the best balance between profit and security is unrivalled by investing in IPO’S. An IPO is an acronym for Initial Public Offering and refers to when a company makes the change from Private to Public.
The benefit of IPOs is that investors can see all the materials that relate to a company’s profitability, debts & assets. From this information, an investor can ascertain whether or not they feel that a company will have public interest.
We have extensively researched companies with growth potential and our top recommendation for investing in lithium, is mining giant Intergroup Mining which is set to launch its IPO this year.
For more information on the upcoming IPO please click here.
How demand is increasing for Lithium
Back in 2021 McKinsey & Company conducted a study of the current lithium demand and then compared it to the projected demand for lithium in the year 2030. The graph below is a visual representation of how much demand will grow in the next 7 years.
Lithium is a promising investment, but it’s important to do your research and understand the risks involved before you invest. There are a number of different ways to invest in lithium, so you can choose the approach that’s right for you.
Here are some additional tips for investing in lithium:
Consider the long term.
The demand for lithium is expected to grow in the long term, so you may want to invest for the long haul.
Diversify your portfolio.
As with any investment try to diversify your holdings, dont just select a stock, bond or ipo. Split your investment across a few asset classes and production stages.
Stay up-to-date on the market.
The lithium market is volatile, so it’s essential to stay up-to-date on the latest news and trends.
Alternative Investment Specialist
At New capital link, we have established an extensive base of clients and investment providers, recognising a gap in the market for professional advocates to introduce HNW individuals seeking investment opportunities to high-calibre companies.
It is self-evident that the ‘one size fits all’ approach is unsuitable for the average investor, for that reason, our initial focus is on identifying individuals’ unique requirements.