Don’t just take our word for it, Rio Tinto is projecting continuing strong demand growth for lithium and put its considerable weight behind the commodity. Investing in lithium producers should continue to deliver big rewards in 2023 and beyond. To learn more about Lithium Stocks and the Mining Sector, please click here.

Lithium Investment Summary: Volatile But Stronger

The big picture is that the physical lithium market is growing fast, supply is having trouble catching up and prices are likely to be volatile and elevated for a number of years. Lithium is a good business to be in for companies with favourable lithium resources and a competitive operation. Lithium companies with good projects have the potential to be good investments.

Read Issue 529 and our special lithium report for our current lithium stocks to buy in December 2022. And learn more about Small Caps Investing and why we picked these ASX Small Cap gems and their outstanding performance.

Rio Tinto Backs Lithium

The diversified mining giant Rio Tinto (RIO) has selected lithium as a core commodity for its portfolio and believes that demand will grow as much as 7-fold by 2030, driven by electric vehicle sales hitting 60m a year combined with net zero carbon emissions legislation in many big economies.

RIO believes supply bottlenecks will mean the cost curve will steepen due to intense demand, and the associated growth in supply that will be required. This should keep the cost curve elevated for a long period of time.

Lithium Price Action

Following a 20% price rally at the beginning of the fourth quarter in November, prices in the Chinese domestic market have been stabilizing and softening in early December with cathode manufacturers adopting a watch and wait strategy towards purchasing material amid covid restrictions in China. Cathode producers drew down raw material inventories established in November.

Despite Covid restrictions being eased in the second week of December, uncertainty remains. Market signals regarding demand for the final weeks of 2022 were mixed.

Prices Down Slightly In December Auction

At the Pilbara Minerals (PLS) spodumene concentrate auction through its Battery Material Exchange (BMX) platform in mid-December 2022, prices were down 3% on the prior month, breaking an unbroken upward trajectory since the first auction in July 2021.

In December two cargoes (total 10,000 dry metric tonnes) were sold at an average price of US$47,552/dmt at a grade of 5.5% lithium oxide (LiO2) on a free on board on a standardised basis, this is equivalent to US$8,229/dmt on a cost insurance and freight (CIF) basis to China.

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What Does This Mean?

To put lithium prices in perspective, recent high prices are extreme and reflect severe current tightness. No one believes prices at these levels are sustainable in the long term. Most serious valuations for lithium stocks using a cash flow method use much lower ‘long term’ lithium prices for the medium- and long-term.

For the Ultimate Guide to ASX Lithium Stocks

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