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On the finish of 2023, the value of lithium fell to its lowest stage in over two years. And it’s did not mount any significant restoration since. However, my long-term view of the worth that the commodity can present to society stays the identical. That’s what I need to focus on right here together with highlighting a high inventory to think about shopping for within the sector.
The noise round Lithium
Lithium is a really comfortable, silvery-white alkali steel that has seen its use escalate for the reason that speedy progress of electrical automobiles (EVs). Much less is understood about its different functions, corresponding to its use in plane building and temper stabilisers (as a remedy for bipolar dysfunction).
Nevertheless, pessimism across the commodity has lately bubbled up after a worldwide slowdown in EV demand, particularly in China. That is necessary as a result of China is the biggest marketplace for EVs, with 8.1m EV registrations out of the 13.9m world registrations in 2023.
This has quickly induced the availability of lithium to surpass demand, pushing its value down. However that is solely a short-term subject. Over time, governments will proceed to attempt to make their economies greener. EVs will grow to be extra interesting because of this, driving its progress additional. In reality, specialists predict that they’ll account for two-thirds of all automotive gross sales by 2030. This could push the value of lithium again up over time, I really feel.
My favorite UK lithium inventory
Over the previous few years, Rio Tinto (LSE:RIO) has acquired lithium-rich mines in Europe and South America.
In 2022 it accomplished the acquisition of the Rincon lithium mission based mostly in Argentina for $825m. This got here after the Serbian authorities revoked its license for the Jadar mission on account of environmental considerations.
Nevertheless, in the previous few days (June 16), information has emerged that the Serbian authorities is getting ready to provide the inexperienced mild for the mission to go forward. This could possibly be large for the EV market in Europe with the mine anticipated to extract 58,000 tons of lithium per 12 months. This is sufficient to energy 1.1m EVs (17% of EV manufacturing in Europe).
In the end, these plans may propel the corporate to grow to be one of many largest lithium producers on the planet.
Now what?
There are dangers in holding shares of Rio Tinto. If the Chinese language financial system continues to stutter, then the value of lithium might keep low for longer, making the corporate’s extraction of the steel much less worthwhile.
Nevertheless, what stands out to me in regards to the firm is that in comparison with different UK lithium producers it’s very well-diversified. Loads of the opposite gamers within the trade, corresponding to Atlantic Lithium, are solely targeted on one steel’s extraction.
Rio Tinto extracts all kinds of metals, together with copper, iron ore, and different minerals. Due to this fact, it’s not so depending on the value of lithium. It’s additionally very worthwhile, producing $10bn of revenue final 12 months.
In the end, I consider it’s a safer possibility than many different lithium shares and subsequently, if I had the spare money, I’d purchase a few of its shares right now.
