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By Kyle Anthony, Benzinga
Generally, price movement in an asset class can be attributed to several factors, but for commodities, the underlying principles of supply and demand are often the primary reasons. Bloomberg recently reported that Chinese battery giant Contemporary Amperex Technology Co., commonly called CATL, has shut down its major lithium mine in Jiangxi province. Jiangxi is a substantial source of lithium carbonate, with estimates that it accounted for 5% to 6% of global supply. CATL is currently the world’s largest battery manufacturer, with a market share of 34%.
The Ripple Effects Of The Mine Closure
News of the mine’s closure had a catalyzing effect on the stock prices of lithium miners, as firms from Asia to the Americas saw an uptick in their equity prices. As S&P Global reported earlier this year, lithium prices have declined for a prolonged period due to the metal’s oversupply and that demand for EVs, particularly outside of China, slowed earlier this year.
As noted in the Bloomberg report, CATL’s stoppage will likely spur an 8% cut in China’s monthly lithium carbonate output. However, much inventory of the metal remains, with recent reporting positing that a historically high level of 130 kilotons is in storage. Though CATL’s mine closure has created a potential opportunity for the metal’s price appreciation.
Gaining Exposure To Lithium Miners With Sprott
With lithium prices being at or close to their floor, a reduction in supply could potentially have a supportive impact on its price. For investors seeking pure-play exposure to the lithium industry, the Sprott Lithium Miners ETF (NASDAQ: LITP) is a turnkey solution that tracks the Nasdaq Sprott Lithium Miners™ Index, which is designed to track the performance of companies that derive at least 50% of their revenue and/or assets from mining, exploration, development or production of lithium. The index generally consists of 40 to 50 constituents.
Lithium plays a pivotal part in battery construction. The movement of lithium ions back and forth between the anode and cathode of a battery generates the free electrons in the anode, producing the actual charge at the positive end of the battery. That charge flows into a vehicle’s motor or the electronics being powered. The lithium market is of interest to some companies that are looking to replace internal combustion engine vehicles with EVs in the years to come.
As argued in Sprott’s summary report 5 Reasons to Invest in Lithium Miners, as electric vehicles and energy storage technologies potentially become mainstays in the global economy, the companies that reflect the value of battery materials may represent or become a source of wealth-building for investors.
Featured photo by MiningWatch Portugal on Unsplash.
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Important Disclosures
Before investing, you should consider each Fundâs investment objectives, risks, charges and expenses. Each Fundâs prospectus contains this and other information about the Fund and should be read carefully before investing.
A prospectus can be obtained by calling 888.622.1813 or by clicking this link: Sprott Lithium Miners ETF Prospectus
The Fund is not suitable for all investors. There are risks involved with investing in ETFs, including the loss of money. The Fund is non-diversified and can invest a greater portion of assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single investment could cause greater fluctuations in share price than would occur in a diversified fund.
Exchange Traded Funds (ETFs) are bought and sold through exchange trading at market price (not NAV) and are not individually redeemed from the Fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns." Authorized participants" may trade directly with the Fund, typically in blocks of 10,000 shares.
Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of experiencing investment losses. ETFs are considered to have continuous liquidity because they allow for an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fundsâ performance.
The Sprott Lithium Miners ETF seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the Nasdaq Sprott Lithium Miners⢠Index (NSLITPâ¢).
Nasdaq®, Nasdaq Sprott Lithium Miners⢠Index, and NSLITP⢠are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the âCorporationsâ) and are licensed for use by Sprott Asset Management LP. The Product(s) have not been passed on by the Corporations as to their legality or suitability. The Product(s) are not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT(S).
One cannot invest directly in an index.
Sprott Asset Management USA, Inc. is the Investment Adviser to the Sprott Lithium Miners ETF. Sprott Asset Management LP is the Sponsor of the Fund. ALPS Distributors, Inc. is the Distributor for the Sprott Lithium Miners ETF and is a registered broker-dealer and FINRA Member.
ALPS Distributors, Inc. is not affiliated with Sprott Asset Management LP.
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