What happened
With the latest economic data from China falling short of estimates, shares of metals and mining companies, including lithium stocks, were getting hit hard on Monday. Here's how some of the stocks fared today:
- Standard Lithium (SLI 3.51%), down 10.2%.
- Microvast Holdings (MVST 5.90%), down 9.8%.
- Romeo Power (RMO), down 11.6%.
So what
Data from the National Bureau of Statistics of China on Monday showed that the country's output in July grew 6.4% year over year, versus 8.3% in June. Industry experts had projected much higher growth in anticipation of demand and manufacturing in China's economy returning to pre-pandemic levels. While a rise in COVID-19 cases and extreme summer temperatures hit industrial activity, investors are worried about decelerating growth in China.
Image source: Getty Images.
A slowdown in China could be detrimental to demand for metals and minerals like lithium. China doesn't just control much of the world's lithium supply, but is also the world's largest consumer of lithium thanks to its huge market for electronics and electric vehicles (EVs).
Lithium prices have risen exponentially in the past year or so, driven by soaring demand for batteries used in EVs. Sales of new energy vehicles in China, for example, shot up 164.4% year over year in July. But sales rose only 5.8% sequentially, and with industrial output also decelerating in July, fears about whether lithium prices will hold up or rally any higher have started to crop up.
More importantly, the bulk of lithium from top-producing countries like Australia is presently shipped to Asia, particularly China, to make batteries that are then exported worldwide. In a recent interview with media company Arkansas Money & Politics, Standard Lithium CEO Robert Mintak stressed the importance of shoring up domestic supply of lithium for "economic security" given China's dominance in the industry. Standard Lithium's technology extracts lithium directly from brine, and its flagship South Arkansas brine project is in a region home to one of the world's largest bromine deposits.
The market also appears to be booking some profits on Standard Lithium shares after their heady rally in recent months. Microvast and Romeo Power shares, on the other hand, have been punished brutally by the market in recent months, and investors fear any slowdown in China will hit these companies harder since both manufacture batteries for the commercial EV industry.
RMO data by YCharts
Investors in Romeo Power, in fact, are also nervous ahead of its second-quarter earnings release, scheduled for Monday after market close. Last quarter, Romeo Power's outlook for 2021 left much to be desired as it projected full-year revenue to be only $18 million to $40 million, citing supply constraints such as the ongoing global semiconductor shortage as a primary reason for lower production and revenue. In November 2020, Romeo Power projected potential 2021 revenue of $140 million, and a whopping $412 million in 2022. Romeo Power generated $1.1 million in revenue in its first quarter, and the consensus estimate is calling for its second-quarter revenue to be around $2.4 million.
Now what
I expect Standard Lithium, Romeo Power, and Microvast Holdings shares to continue to be volatile given that all three are relatively new stocks in the publicly-listed lithium sector. Moreover, Microvast is also getting meme stock attention of late. As tempting as meme stocks might be, it's just as easy to get your fingers burned.