Please ensure Javascript is enabled for purposes of website accessibility

Why Lithium Stock Livent Corp. Popped 12% This Morning

By Rich Smith – Jun 17, 2019 at 2:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Money for lithium mining is drying up. Perversely, this could mean bigger profits for Livent.

What happened

Shares of lithium miner Livent Corp. (LTHM -2.84%) 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.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.