What happened

Lithium stocks are firing up this week as demand for the red-hot commodity continues to surpass supply. While big numbers from lithium miners and mega supply deals in the industry set the tone for the rally in lithium stocks in the previous weeks, the passing of the Inflation Reduction Act and rising lithium prices fueled this week's momentum.

Despite Friday turning out to be a slow day, these top-performing lithium stocks were still up by double-digits this week as of noon Friday, according to data provided by S&P Global Market Intelligence:

  • Sigma Lithium (SGML -2.15%): Up 19.4%.
  • Sociedad Quimica y Minera de Chile (SQM -3.02%): Up 15.2%.
  • Livent (LTHM): Up 14.5%.

Chances are, this rally may not die down anytime soon.

So what

Lithium carbonate prices in China jumped this week and are now barely off 1% from their all-time highs hit in March, according to data from Trading Economics.

Lithium prices, in fact, have skyrocketed almost 500% since the beginning of 2021 as global sales of electric vehicles (EV) rose exponentially even as the war between Russia and Ukraine threw commodity supply chains out of gear. Lithium carbonate is primarily used in batteries that power EVs.

Yet, just when investors in lithium stocks were starting to feel jittery amid fears of a slowdown in China as it battles a coronavirus wave, the latest customs data from Shanghai released this week revealed a massive 108% year-over-year jump in the nation's lithium carbonate imports. That's a surefire indication of a rebound in demand for new energy vehicles (NEV) in China, something the China Passenger Car Association just corroborated; it expects retail sales of NEVs to jump almost 108% year over year in August and about 7% sequentially.

China has a fresh problem, though, which bodes well for lithium and is one of the biggest reasons why lithium prices, and lithium stocks, shot up this week: a power crisis.

A record heatwave and a severe drought in China may have put several EV charging stations out of power, but the extended power cuts have also hit operations in the nation's primary lithium-producing regions like Sichuan. That's likely to disrupt supply in an already tight lithium market, which is why lithium prices shot up in response.

Now what

Going by the latest updates from China, lithium prices could head even higher and touch a new record. Investors understand how rising lithium prices are a boon for miners and are therefore betting big on stocks from the industry.

Sigma Lithium, which is building a mine in Brazil, called its second quarter "transformative" as it expects to commission the project later this year and start production next year. Sigma Lithium also just doubled its planned near-term battery-grade lithium production to 531,000 tonnes per year.

Last week, SQM reported a staggering 342% jump in its year-over-year revenue for the second quarter, driven almost entirely by its lithium segment. SQM also sells plant nutrition and other products, but lithium made up almost 71% of its total revenue in Q2. SQM expects global demand for lithium to rise by at least 35% this year and is therefore aggressively expanding capacity to make the most of the lithium boom. This week, analyst Corinne Blanchard from Deutsche Bank even raised SQM's price target to $115 a share.

A similar story is playing out at other lithium miners. Pure-play lithium miner Livent reported  an almost tenfold year-over-year jump in its second-quarter net profit and upgraded its full-year guidance revenue and earnings guidance. Livent expects its revenue to almost double at the midpoint in 2022. Earlier this month, Livent signed a six-year lithium supply deal with legacy automaker General Motors.

With demand for EVs booming and prices of lithium on the rise, investors are loading up on top lithium stocks like Livent while they still can.