What happened

Shares of lithium miner Livent Corp. (NYSE:LTHM) surged in early trading Monday -- up 12% -- before retracing to about a 7.7% gain as of 1:45 p.m. EDT. Why?

Supply. That's why.

Lithium evaporation ponds

Image source: Getty Images.

So what

The issue is supply...or rather, the imminent lack of it. Earlier this morning, Bloomberg News reported on analyst comments overheard at the Lithium Supply and Markets Conference in Santiago, Chile, last week -- specifically, analysts lamenting the lack of investors and fund managers attending said conference.

According to these analysts, the red-hot marijuana market is sucking up "risk capital" around the globe, and starving would-be lithium start-ups of cash. They need cash to grow production to meet rising demand for the white metal, which is used to manufacture rechargeable batteries for electric cars.

Now what

Currently, there's only demand for about 325,000 tons of lithium concentrate annually, according to Bloomberg, and the market is "slightly oversupplied." But as battery-operated cars grow in popularity, lithium demand is expected to more than triple, to 1 million tons per year by 2025. To fully supply that demand, miners need to attract about $9 billion in new investment. But if all the "hot money" in the market is going into marijuana, that $9 billion isn't going to be raised -- and that supply will not appear.

The result: Limited supply will clash with rising demand to result in higher prices for lithium, and higher profits for lithium miners like Livent. At least, that seems to be what investors are betting on today.

Tune back in around 2025 to find out if they were right.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.