Demand for electric vehicles
The lithium price index from research firm and price provider Benchmark Mineral Intelligence doubled from May to November and is up around 240% year on year. The index is at its highest level in five years.
The growth is being driven by bets on continued deficits. Demand is multiplying as Tesla Inc.
"It looks like a hot real estate market," said Jon Evans, chief executive of Lithium Americas Corp.
Lithium America did not produce lithium, but it has a market value of about $4 billion after a recent spike in share prices.
The rally raises concerns about battery makers and automakers getting enough material to meet demand for electric cars. Many companies are also facing higher prices for other raw materials and key parts, such as computer chips.
High lithium prices are a boon for a small group of companies, including Albemarle Corp. which dominates global supply and recently reported a resurgence in sales.
Many others are rushing to take advantage of the rush, causing share price gains that mirror those of Tesla and electric car stocks. The Global X Lithium Battery Tech ETF is up more than 40% this year, while shares of some lithium producers are up around 70% or more.
Lithium stocks are the primary means for investors to bet on prices because there is no active futures market like more actively traded commodities such as oil.
China is the world leader in lithium chemistry and battery production, a concern for politicians and US companies hoping to build a domestic supply chain but struggling to compete with China's low costs and industry expertise.
The problem for lithium producers is that projects take many years and require large investments, creating a mismatch between rapidly growing demand and supply. Prices soared in 2017 and 2018, but fell sharply after companies increased production.
"There is enough lithium out there. The problem is the investment needed to make that happen," said Eric Norris, president of Albemarle's lithium division, in the company's earnings report last month.
The number of deals in the sector is growing. Koch Strategic Platforms, part of billionaire Charles Koch's Koch Industries Inc. conglomerate, invested $100 million earlier this month in Standard Lithium Ltd, a company that works with the German firm to produce lithium chemicals in Arkansas. Koch Strategic Platforms has made several similar investments in start-ups and the battery supply chain.
