Supply Shortage Could Impact Lithium ETF

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Tom Lydon
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Long viewed as one of the primary avenues for playing the electric vehicle boom, the Global X Lithium & Battery Tech ETF (NYSEARCA:LIT), which tracks the full lithium cycle from mining and refining through battery production, is down more than 20% this year.

Tighter supply in the global lithium market could impact LIT. LIT is more than eight years old and targets the Solactive Global Lithium Index.

"Fitch believes there are challenges to producing high-quality supply that could cause additions to fall short of expectations, even if demand for electric vehicles (EV) and other electronics requiring rechargeable batteries temporarily slows," said Fitch Ratings in a note out Thursday.

Electric vehicles are in the early innings of development, and there are signs that there is a lot of pent up demand among consumers who want to embrace the technology. In 2017, electric vehicle sales represented 1.7% of all vehicle sales globally, exceeding 1 million for the first time and rising 51% year-over-year. The rate could continue to accelerate as a result of EVs becoming more economical than gas-powered cars and as a result of a pro-climate regulatory change pushing to ban gas-powered cars.

Crimped Lithium Mining Supply

LIT holds 33 stocks, and several of those companies are directly engaged in lithium mining. Over 58% of LIT's sector exposure is allocated to the material sector.

"CRU projects global supply of lithium carbonate equivalent will hit 557 kilotonnes (kt) by 2023, rising at an 18% CAGR from 2015 to 2023. This projected capacity growth is highlighted by expansion projects from all of the leading global producers," according to Fitch.

While producers are looking to increase lithium output to meet rising demand, that does not mean all the projects will come online in a timely fashion. Nor does it mean producers are assured of tapping high-grade lithium.

"Lithium operations, particularly brine, can be difficult to bring online and require expertise and a significant learning curve to operate effectively," said Fitch. "Delays in project timing are not uncommon, even among top producers, and plants can take years to fully ramp up once construction is completed."

The potential for supply shortages comes against a backdrop of robust demand expectations, and those expectations are in place for a multi-year period.

"Leading industry analysts project lithium demand to remain robust through the next several years as a result of the continued adoption of EV, with CRU projecting lithium demand to grow at a 12% CAGR through 2023 to 484kt," according to Fitch.

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Tom Lydon profile picture
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Tom Lydon is editor and publisher of ETF Trends, a website with daily news and commentary about the fast-changing trends in the exchange traded fund (ETF) industry. Mr. Lydon is also CEO of Global Trends Investments, an investment advisory firm specializing in the creation of customized portfolios for high-net worth individuals. He has been involved in money management for more than 25 years. Mr. Lydon serves on the Board of Directors for U.S. Global Investors, Inc. and Guggenheim Investments. In early 2010, Mr. Lydon helped create the CNBC Model ETF Portfolios. Mr. Lydon is the author of The ETF Trend Following Playbook, as well as iMoney: Profitable Exchange-Traded Fund Strategies for Every Investor. He is Co-Founder of Virtual Summits, educational virtual events for financial advisors. Visit his site: ETF Trends (http://www.etftrends.com/) ETF Virtual The ETF Virtual Summit is the largest exchange traded fund (ETF) investment conference in the world. ETF Trends and RIA Database host this complimentary, interactive conference that exists completely online. The virtual showroom features keynote speakers, panel webinars, an exhibitor hall, a networking lounge and hot topic forums. Designed exclusively for Financial Advisors, this conference allows you to interact with experts in the ETF industry in a unique, virtual environment, avoiding the hassles and costs of traveling. Details on the conference, including agenda, past attendee statistics and sponsor information can be found at www.ETFVirtual.com. Alts Virtual The Alts Virtual Summit is the leading Alternative Investment conference for financial advisors. ETF Trends and RIA Database host this complimentary, interactive conference that exists completely online. The virtual showroom features keynote speakers, panel webinars, an exhibitor hall, a networking lounge and hot topic forums. Designed exclusively for Financial Advisors, this conference allows you to interact with experts in the Alternative Investment industry in a unique, virtual environment, avoiding the hassles and costs of traveling. Details on the conference, including agenda, past attendee statistics and sponsor information can be found at www.AltsVirtual.com.
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