What to know about ASX Lithium Stocks.

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Lithium recently became one of the most valued and prized mineral commodity in recent years, especially in the advent of electric vehicles and its ever increasing share of the automotive market. But with terms from Spodumene concentrate, lithium ion batteries, to Lithium Hydroxide we'll help you understand the rising Lithium prices and give you some top recommendations on ASX Lithium stocks to buy.

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What is lithium?

Lithium is according to google, a common light metal, that can store a lot of electricity.

What does this mean for batteries?

Lithium has the highest charge to weight ratio, allowing the world to carry their phones with a light lithium ion battery, instead of lead battery weights

If it's so common, why is there so much interest?

Importantly, although Lithium is relatively common, it is rare to find a concentrated lithium deposit. and its even rarer to find a battery grade lithium deposit. As such, a new lithium project, is a source of excitement for ASX Lithium Investors

What is causing so much Lithium Demand?

Cars need an effective power source for their weight, which is why, with lithium’s weight to charge ratio, the Lithium ion battery has become the industry standard for electric vehicles.

Combine this with the rapidly growing market share of electric vehicles, this means a lot more lithium batteries, which means more lithium demand, which needs to be filled by new lithium projects, new methods of extraction and conversion, or both.

Another growing concern is the European Union’s carbon tax, which aims to reduce emissions by pricing carbon, and forcing companies that produce that carbon to pay for it. producing Battery grade lithium is an emission intensive process and as such will become an expensive endeavour for companies seeking to fulfil the 70% electric vehicle market share by 2030.

Global EV Sales Accelerating

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Sales of global plug-in electric cars (including hybrids) increased to around 442k vehicles in May 2021, according to InsideEVs. This represents a 199% uplift compared to May 2020. Sales in March were even higher at just over 500k vehicles. During the first five months of 2021, total worldwide EV sales were almost 2m vehicles representing a global market share of 5.8% compared with 4% a year ago, where sales were 750k.

Demand for lithium is based on the number of EVs required and the lithium required per battery. 

This isn’t going to happen over the next 2-3 years, but over the next 10 to 20. Over this time frame you’re looking at monster cumulative demand growth as global EV penetration takes hold.

All significant proposals for EVs involve batteries that use lithium. Lithium is now well entrenched with massive sunk capital in battery and vehicle design and the manufacturing plants to build them. On what we know, it seems highly unlikely that any significant commercial substitute for lithium batteries will emerge.

Global planned Gigafactory capacity increased

In response to the rising EV sales momentum, planned global battery Gigafactory capacity is increasing. Based on committed investments announced during the June Quarter, the global capacity planned to be achieved by 2030 has increased by 460 gigawatt hours (GWh) to 4,200GWh.

Big rise in lithium chemical and conversion capacities in china

Driven by rising gigafactory demand, conversion capacities of battery inputs in China are increasing rapidly, underpinning further demand. Battery inputs such as spodumene (lithium concentrate) are converted into lithium hydroxide or lithium oxide.

Over nine months lithium carbonate capacity has increased from 14.5k tonnes a month to 20.5k tonnes; while lithium hydroxide capacity has increased from 12.3k tonnes a month to 14.5k tonnes.

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Monster lithium demand growth: a 2022-2025 lithium supply deficit

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In 2020, global lithium demand is estimated at around 300k tonnes lithium carbonate equivalent (LCE) with about 180kt (around 55%) consumed in cathode batteries. At current demand and supply levels, the lithium market is in surplus. 

However, this could change quickly. Demand estimates show a probable period of exponential growth to 2025 with demand increasing to a potential 900kt LCE. Forecasts of supply based on current and probable sources point to a structural deficit looming as early as 2022 and by 2025 at the latest. 

If the forecasts are continued further out in time, demand escalates to 2mt LCE in 2030, 3.5mt in 2035 and over 5mt LCE in 2040. By 2040, battery use will account for almost 90% of global lithium demand. These forecasts assume that long term vehicle demand is not affected by COVID-19.

Why is lithium important to the Australian Market?

One of the core concerns for ASX investors, is where lithium mining is occurring. In the lithium triangle, a portion of the Andean mountains between Chile, Argentina and Bolivia, that encompasses approximately an estimated 54% of Global Lithium deposits.

However, in spite of the raw mineral resources of these countries, Australia is the world’s largest producer of lithium and as such provides an incredible source of lithium ready for ASX investors. with the majority of resources located in Western Australia.

Spodumene (lithium concentrate), from hard rock producers, is the upstream feedstock for most conversion plants in China. Spodumene prices have risen by over 80% so far this year and keeps rising.

Spodumene (6% lithium hydroxide or Li2O) was priced at US$690-750 per tonne on 30 June 2021 in China, up by US$35 per tonne or 5.1%, from a month earlier.

From Producers such as Pilbara Minerals (ASX:PLS), Galaxy Resources (GXY)/Orocobre (ORE) merger and Vulcan Energy, the Australian ASX Market is filled with Lithium miners.

Higher prices for battery grade lithium carbonate and lithium hydroxide

Lithium chemical prices continue to rise. Global weighted prices for lithium carbonate increased by 15.6% to US$12,432 per tonne in the June Quarter and are almost twice those in August 2020, according to consultancy Benchmark Minerals.

Prices however, have recently stabilised due to higher imports from Chile and growing seasonal production from China domestic lithium brine projects in Qinghai Province. Lithium hydroxide prices maintained a premium over carbonate prices at US$13,873 per tonne in the June Quarter.

Battery cathode producers are flagging tight availability of lithium hydroxide, partially resulting from supply constraints of Australian spodumene. When you’re hot, you’re hot!

Why is sustainable Lithium production important?

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Unlike any time previously, stock analysis now requires consideration of carbon emission reduction strategies, or more broadly, environmental and sustainability initiatives.

Investors will be increasingly cautious of a lithium company which is itself a heavy carbon emitter. These issues will influence the decisions of investors such as pension funds, financiers such as banks as well as customers.

Have You Heard of the New Carbon Tax?

The EU is enacting its carbon tax initiative, which also acts as a contract tracing mechanism when it comes to carbon emitted in processes for goods imported.

The EU’s “Carbon Border Adjustment Mechanism” requires that exporters to the EU pay a levy based on the amount of carbon used in making and shipping products.

This necessarily requires information being provided on the carbon footprint of every component from the mine gate to final product supply chain, as part of an “electronic product passport”.

For example, the battery alone could represent in the region of 30% of carbon emissions in an EV lifecycle. Mechanisms such as the CBAM and similar schemes elsewhere in the world create an imperative for miners and others in the supply chain to reduce emissions.

What is the electric vehicle conundrum?

Here’s what we know. Electric Vehicles (EV) have negligible greenhouse emissions when being used, contrasted with the high emissions from petrol cars and trucks whose mode of power is the internal combustion engine.

On the other hand, the manufacture of an EV requires a great deal of energy and produces more emissions than producing a petrol vehicle. Lithium-ion battery manufacturing is energy intensive due to the cost of lithium extraction and its processing into battery grade.

What is changing for investors is increasing supply chain risk for producers of EV components. This is the risk that emissions generated in the production of EV components are higher than they should be, which is related to increasing regulatory requirements.

What is The European Union’s Life Cycle Assessment?

Despite being emission intensive, EVs have much lower life-cycle greenhouse gas emissions than petrol vehicles. On top of this, world leading regulatory authorities including the European Union, recognise the importance of maximising the life-cycle benefits of EVs.

They understand that in order for EVs to make a meaningful contribution in improving the environment over their entire life, there needs to be minimal emissions i.e. in both their production and consumption.

On this front, “Life-Cycle Assessment” is used by the EU and others to monitor and reduce emissions. Key statistics are provided for stakeholders such as car buyers and governments.

Where is the evidence of sustainability and reducing emissions?

We are seeing the impetus for carbon emission reductions in annual reports, in company updates and in proposals for future projects, such as scoping and feasibility studies.

Many wide-ranging emission reducing strategies are being adopted or considered for lithium mines and production facilities. These include solar power generation, the electrification of vehicle fleets, the use of green hydrogen power and downstream processing to reduce transport related emissions.

Other initiatives related to the environment have both positive environmental benefits as well as cost savings and include water usage and water table considerations.

Legislated advantages for lithium

The introduction of government requirements for zero emissions applying to all new vehicles has been mandated by certain countries, mainly in Europe, as early as 2030. Some companies, such as BMW, are gearing up to increase production of EVs and expect to have completely exited production of internal combustion vehicles by 2050. 

Should ASX Investors Buy Lithium?

After a period of exuberance in new lithium projects, the market became oversupplied and prices fell. Projects were cut back, deferred or cancelled for lack of funding. COVID-19 created further uncertainty.

But the move to EVs is unstoppable with government legislation in some countries and all the major car manufacturers factoring EVs into their forward schedules. We are talking about a 20 year transformation.

With demand estimates showing potential exponential growth to 2025 and beyond, a structural deficit and higher prices could loom as early as 2022 and by 2025 at the latest. This does not provide much time for new projects.

Companies with existing producing lithium operations will be well placed for great ASX investment potential.

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What are the Top 3 ASX Lithium stocks to Buy?

The three best lithium stocks have premium assets and our analysts agree these stocks are quality lithium stocks with a big future.

Stock market confidence in the demand outlook for battery grade lithium carbonate has increased. Our analysts agree investor demand for lithium exposure will continue rising.

We are maintaining our recommendations on our three selected lithium stocks, all of which are in production and expected to experience growth. Here are three of our favourite lithium stocks to buy now.

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Panoramic Resources (ASX:PAN)

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Share price: $0.21

Market cap: $389.7m

Dividend yield: 0%

Net cash: $26.4m

There is no doubt Panoramic is a Small Cap, but it's also the second-biggest Australian nickel sulphide producer behind BHP Billiton.

Its Savannah and Lanfranchi Projects are both located in Western Australia. PAN also holds development projects focusing on gold and PGMs.

This company has the vision to broaden the exploration and production base to become a major diversified mining house in the ASX 100. It is a long way from doing this, but in the meantime, nickel is a relatively good place to be.

Pilbara Minerals (ASX:PLS)

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Share price: $2.14

Market cap: $3867.4m

Dividend yield: 0%

Net cash: $63.9m​

Pilbara Minerals is a premium Australian based lithium-tantalum producer. It owns 100% of the Pilgangoora hard rock lithium-tantalum project, located 120km south of Port Hedland, Western Australia.

The company is also aiming to build a presence in the downstream value-added lithium through the development of chemical conversion plants in South Korea and China.

Orocobre (ASX:ORE)

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Share price: $9.56

Market cap: $3212.9m

Dividend yield: 0%

Net cash: $314m​

Quite recently Orocobre Has taken over Galaxy Resources, in a bid to centralise WA Lithium production reducing overhead costs in lithium processing.

Orocobre does trade on the ASX and is exceptionally well placed as an existing producer with a significant planned and funded expansion. There is still a surplus in lithium but it could be in deficit within two years.

Delays to competing projects due to COVID-19 may lead to a particularly tight economic environment. The outlook is for the lithium market to experience a 3 fold increase in lithium demand in the next 5 years.