Why is Lithium popular yet falling heavily?

There is no doubt that lithium is a hot topic right now, especially when there are images of exploding scooters, EVs and other similarly powered devices in the news.

However, lithium is more than something that’s just prone to spontaneous combustion, so this week, we’ll look at this highly popular and, dare I say, hotly debated topic.

I will also review some Australian lithium stocks to determine whether there are any real opportunities right now or if all the talk is just another overhyped story best left for discussions around the dinner table. 

The lithium carbonate futures price chart tells an interesting story, especially given all the hype around lithium in recent years. The last thing most would have expected is that the price of lithium would have fallen 75 per cent in the past 12 months, but the good news is that any market that has fallen heavily is worth investigating. So, why is Lithium popular yet falling heavily?

Lithium is used in many industries, including electric vehicles and energy storage systems, and we know that the world is moving towards an all-electric future. As such, the potential gain from holding lithium stocks is well warranted, especially since experts such as Statista are forecasting global lithium demand will surpass 2.4 million metric tons, doubling the 2025 forecast. Bloomberg also predicts a nearly fivefold increase in lithium demand by the end of the decade.

The challenge for lithium is that we’re constantly finding new and better ways to produce and store electricity, especially in the renewable energies space, so the risk of being superseded by a new technology, such as sodium for example, is a major concern for the commodity. 

It’s not the first time I’ve seen a market move in the opposite direction to the hype, and right now, lithium stocks are down 70 per cent or more from their all-time high, except for Pilbara Minerals (ASX:PLS).

Pilbara happens to be the largest player in this space and has gained more than 4000 per cent since the March 2020 low. More recently, it has only fallen 35 per cent from its all-time high, which suggests there is strong interest in this stock.

If the price of lithium catches up to its hype, Pilbara is one stock you should take a very close look at, especially if you want exposure to this commodity in your portfolio. As for the other stocks in this space, I would stay away until the price of lithium is well and truly rising; otherwise, you might just be catching a falling knife.

What are the best and worst-performing sectors this week?

The best-performing sectors include Financials, Utilities and Healthcare, which are all just in the green for the week. The worst-performing sectors include Materials and Energy, down over 2 per cent, and Consumer Staples, down under 2 per cent. 

The best-performing stocks in the ASX top 100 include AGL Energy (ASX:AGL), up over 7 per cent; followed by Worley (ASX:WOR), up over 5 per cent, and Harvey Norman Holdings (ASX:HVN), up over 4 per cent. The worst-performing stocks include Santos (ASX:STO), down over 7 per cent, and Whitehaven Coal (ASX:WHC) and Newmont Corporation (ASX:NEM), down over 6 per cent. 

What’s next for The Australian stock market?

This week, the All Ordinaries Index reversed its recent rise to fall around 1 per cent as of writing. While I still believe the Australian market will push higher to take out the all-time high in the next week or so, the reluctance to break the all-time high this week makes me think that February will be a flat month, as I mentioned last week.

This week saw the commencement of reporting season, and so far, more than 50 per cent of companies that reported beat expectations, while only 15 per cent missed their mark. That means more than 80 per cent of companies were either in line with, or beat expectations, which is a fantastic result.

Some of the companies that have reported are in the property sector, and I would encourage investors looking for clues as to the direction of future interest rates to take a close look at their reports. Most notably, Mirvac Group (ASX:MGR) reported a statutory loss to the tune of $165 million, and if more property companies follow suit, then the RBA may act sooner to reduce interest rates.

I would also encourage you to keep an eye on the big players, including BHP Group (ASX:BHP), Rio Tinto (ASX:RIO), and the big four banks, as their results will have a much greater impact on the broader market.

Remember, reporting season creates heightened volatility and wild swings in price both up and down. That said, I suspect reporting season will produce many opportunities for traders to take advantage of, so keep an eye on your favourite stocks.

I believe patience is the order of the day for at least the next few weeks until reporting season ends. While the Australian market may well be bullish over the next few weeks and break above the all-time high, it could also move up and down like a yoyo, which is typical for February.  

For now good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice.

The material provided in this article is for information only and should not be treated as investment advice. Viewers are encouraged to conduct their own research and consult with a certified financial advisor before making any investment decisions. For full disclaimer information, please click here.

While Wealth Within holds an Australian Financial Services License (AFSL:226347) the information featured in this program is general in nature and therefore should not be relied upon. Before making any investment decisions, you should consult a licensed professional who can advise whether your investment decisions are appropriate for you.