Lithium

Lithium trading involves speculating on the price of one of the most important metals in the world, used for hand-held devices and electric vehicles. There are various opportunities to gain exposure to the market, including futures, CFDs, ETFs, and stocks in related companies. This guide will explain lithium trading basics, including price drivers, ways to trade lithium, and the benefits and risks. Our team have also reviewed and listed the best lithium brokers.

What Is Lithium?

Lithium is a lightweight metal primarily used for batteries, with two of its most useful properties being its high density and conductivity of electrical energy. In particular, Lithium is used in consumer electronics such as mobile phones, laptops and other handheld devices. Approximately 60% of mobile phones and 90% of laptops in circulation today use lithium-based batteries.

Other prominent uses include transport, the energy industry and medicine. For instance, almost all electric vehicles (EVs) are powered using lithium-ion (also known as li-ion) batteries. Alongside this, lithium batteries are key for the expansion of renewable energy.

In 2021, the global lithium market was valued at more than $4.5 billion. In 2013, the average price per metric ton of lithium was $6,800. In 2022, the average price of a metric ton of lithium had reached $37,000.

Lithium itself is a volatile commodity, offering dynamic trading opportunities via ETFs, CFDs, futures and stocks.

Lithium Production & Trade Flows

In 2021, the greatest producers of lithium included Australia, Chile, China and Argentina. Australia is by far the largest producer and exporter of lithium, with 55.4 thousand tonnes, followed by Chile at 26 thousand tonnes. China and Argentina are third and fourth, with a production of 14 thousand and 6 thousand tonnes, respectively. Some other prominent producers of lithium include Brazil, Zimbabwe, Portugal and the USA.

The largest importers of lithium materials such as lithium carbonate are South Korea, China and Japan. Together, these three countries imported around $830 million worth of lithium in 2021, accounting for just under 70% of all global imports. The US and Germany were the fourth and fifth biggest imports, both responsible for around 7.7% of all lithium imports.

What Drives Lithium Prices?

Electric Vehicles

In recent years, the demand for electric vehicles has grown rapidly. In 2017, 1 in every 70 cars sold globally was electric, however, by 2022 this had increased to 1 in every 7.

This increasing demand for EVs is one of the key drivers behind the trading price of lithium.

Energy Storage Demand

Lithium batteries are valued for their energy-storing capabilities, making lithium a key element of global renewable energy initiatives. As more countries move towards renewable sources such as offshore wind, the need for lithium technology may rise and could drive prices up.

Production Changes

Improved production methods for lithium extraction, such as direct extraction from brine sources, can increase efficiency and lower costs. This could lead to an increase in supply and potentially lower prices.

Environmental Regulations

Lithium production demands a significant amount of water and can cause contamination in nearby areas. If new regulations are implemented, such as water recycling or changes to the chemicals used, this could make the extraction process more costly.

This could lead to reduced supply and potentially drive up the lithium trading price.

How To Trade Lithium

Trading lithium directly is not possible, unlike other metals and commodities such as gold, silver and crude oil. Instead, you can buy into companies that are involved in the supply chain or use derivatives such as CFDs.

• Contracts for difference (CFDs): CFDs allow investors to speculate on lithium without owning the underlying asset. A CFD pays out the difference in value between the underlying asset at open and at the close. Top brokers such as IG Index, for example, offer CFD trading on popular lithium stocks and ETFs.
• Stocks: You can also trade stocks in companies that are a part of the lithium supply chain. Some of the biggest lithium stocks include US battery manufacturer, Albemarle, and chemical company Sociedad Química y Minera de Chile. Both are available at leading brokers including CMC Markets and eToro.
• Exchange-traded funds (ETFs): For more diversified investment opportunities, you could trade lithium ETFs. These are funds made from a collection of shares in companies, which can help to reduce the risk exposure of a single investment. One example is the Global X Lithium & Battery Tech ETF which includes lithium and battery producers.
• Futures: When trading lithium futures, the contract value and expiration time are agreed upon when you open the position. Traders are obligated to complete the transaction with a futures contract, even if the market moves unfavourably. You can trade lithium hydroxide futures at leading exchanges including the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME).
• Spread betting: Spread betting involves betting on the points of movement between the open and closing prices of a lithium asset. For instance, a £3 per point spread bet going long could net a profit of £12 if the lithium asset increases in value by 4 points in your favour. Spread betting is also available with leverage, boosting potential profits.

Comparing Lithium Brokers

Regulation

We recommend trading with trusted lithium brokers regulated by the UK’s Financial Conduct Authority (FCA).

The FCA ensures that UK brokers follow strict guidelines which protect retail traders. This includes the mandated implementation of negative balance protection and compensation of up to £85,000 via the FSCS in case of broker insolvency. You can check that brokers are licensed by running their Firm Reference Number (FRN) through the FCA register.

Fees

Look for lithium brokers with competitive fee structures and commission rates. For example, Plus500 offers Albemarle stock with a spread of 1.95. You should also account for trading commissions, swaps on overnight positions, payment fees and any inactivity charges.

Trading Platforms

Ensure lithium brokers offer high-quality trading platforms with good charting capabilities. Access to market news and analysis will also be advantageous, such as new regulations, global environmental initiatives or lithium company trading halts.

MetaTrader 4 and cTrader are popular examples, though some top lithium brokers also provide proprietary platforms.

Tools

Additional trading insights or analytical tools provided by the broker could give your lithium strategy an edge.

For example, eToro offers a world-leading social trading community and copy trading services. Also look out for economic calendars, insights from in-house experts and demo accounts to practise lithium trading, which are available at most brokers.

Benefits Of Trading Lithium

• Lithium could remain a dynamic market to trade due to its vital uses in electric vehicles and hand-held devices
• Many global companies are involved in the extraction and production of lithium, offering a range of stocks to invest in
• The price of lithium is volatile, which can provide trading opportunities via equities and derivatives

Risks Of Trading Lithium

• Lithium production is commonly outsourced to Asian countries, making the industry vulnerable to government policies and trade agreements
• General consumer sentiment towards electric vehicles and costly production methods could dampen prospects of lithium battery demand
• The availability of tradable lithium instruments at online brokers is more limited than other commodities

Bottom Line

With rising global environmental concerns, the demand for lithium technology may increase over the coming years. While you cannot directly trade on lithium prices, you can instead speculate on lithium-based companies and ETFs, via stocks and derivatives. To take advantage of the dynamic market, make sure you choose regulated, trusted brokers with competitive fees and access to real-time lithium market news and analysis.

FAQ

Article Sources

BP Lithium Production Statistics

World Economic Forum Electric Vehicle Statistics

Lithium Carbonate Price 2022