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Lithium ETF at One-Month High: Here's Why

Sanghamitra Saha

The world’s largest producer of lithium, Albemarle Corp. ALB brightened the outlook for the lithium industry after reporting its fourth-quarter results on Feb 20. The company swung to profit in the quarter and shares gained 7.8% in the key trading session of Feb 21.

The chemical maker posted a profit of $129.6 million or $1.21 per share in the quarter, against a loss of $218.4 million or $1.95 per share a year ago. The bottom line in the reported quarter was boosted by earnings growth across the company’s Lithium and Bromine Specialties units.

Global sales of electric vehicles surged 98% in the fourth quarter, Albemarle’s chief financial officer Scott Tozier noted, as quoted on Bloomberg. The number of available plug-in hybrids and battery-electric models announced by automakers for 2021 has risen about 40% since mid-2017.

The company provided an upbeat outlook for 2019. It expects growth in 2019 to be driven by higher volumes in the Lithium unit and projects adjusted earnings for 2019 in the band of $6.10-$6.50 per share, projecting a year-over-year increase of 11%-19%.

Such upbeat guidance and facts boosted investors’ confidence about lithium demand. Albemarle’s results acted as a cornerstone for the industry. Shares of other key lithium producers also gained on Feb 22.

Trade Hopes

There was speculation that demand for lithium might slow down in China in the rest of the year as indicated by U.S. producer,Livent Corp (LTHM). China is the world’s largest lithium user. So, a trade truce between the China and the United States will boost growth of the Chinese economy and drive demand for lithium (read: U.S.-China Trade Optimism Boosts These ETFs).

Solid Demand for Electric Cars in China

Even though the industry is seeing a slump in sales of late, electric powered vehicles are gaining popularity, thanks mainly to technological advancement and improving cost economics. It also has its biggest market in China and electric carmakers are the key users of lithium (read: Ride the Speeding Electric Vehicle Industry With These ETFs).

Deliveries of new-energy passenger vehicles, including pure-battery, plug-in hybrids and fuel-cell cars, more than doubled to 85,000 units in China in January, thanks to a rush before the government takes back subsidies for zero- and low-emission automobiles by 2020, per Bloomberg. China’s drive for a cleaner economy should thus drive demand for electric vehicles and lithium in the near term.

Against this backdrop, investors can play the following ETFs to tap the solid potential in the industry.

Global X Lithium & Battery Tech ETF LIT

The fund invests in the full lithium cycle, from mining and refining the metal through battery production. The United States holds about 44.59% of the fund while South Korea (11.9%) and Japan (10.4%) get double-digit exposure. The 39-stock fund charges 75 bps in fees. The fund gained 1.6% on Feb 21 and is up 9.8% this year so far (see all Materials ETFs here).

Amplify Advanced Battery Metals and Materials ETF BATT

The fund looks to provide exposure to lithium, cobalt, nickel, manganese and graphite via publicly traded stocks. Companies that are in the business of mining, exploration, production, development, processing or recycling of advanced battery metals and materials get an entry card to the fund.

The 44-stock fund charges 72 bps in fees (net). As far as metal weightings are concerned, the fund puts the highest weight in nickel (35%) followed by lithium (25.9%). Asia gets the highest exposure of 27.6%, followed by Australia (26.4%). The fund, however, was down only 0.3% on Feb 21.

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Albemarle Corporation (ALB) : Free Stock Analysis Report
Global X Lithium & Battery Tech ETF (LIT): ETF Research Reports
Livent Corporation (LTHM) : Free Stock Analysis Report
Amplify Advanced Battery Metals and Materials ETF (BATT): ETF Research Reports
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