Lithium ETFs Tumble On Tesla Woes and Supply Challenges

  • LIT ETF is heading for its biggest quarterly loss since 2015
  • Investors take step back as focus shifts from squeeze to glut

Lithium lovers are having something of a quarter-life crisis.

Investors who piled into the Global X Lithium & Battery Tech exchange-traded fund amid the fervor over electric vehicles are now feeling some pain. The fund is down 16 percent this year amid signs that supply may grow a little faster and demand a little slower than previously thought.

The ETF tracks an index of battery and lithium producers such as FMC Corp., Tesla Inc. and Albemarle Corp. It’s having the worst quarter since 2015 after analysts from Morgan Stanley to Wood Mackenzie put out bearish lithium research, and Tesla faces the ire of investors questioning whether it can bring electric cars to the masses before running out of cash.

“There’s lot of uncertainty about how much supply will be in the market starting in 2019 and what that may mean for lithium prices next year,” Christopher Perrella, a chemicals analyst at Bloomberg Intelligence, said by telephone. “The market is trying to figure out the valuation.”

LIT is on track for its fourth straight monthly decline, the longest losing streak since 2015. Despite the slump, the ETF has seen its assets surge 746 percent since the end of 2016, according to data compiled by Bloomberg Intelligence. That’s the second-fastest growth rate among 819 peers across all asset classes.

Now concerns are shifting from a lithium supply shortage to a glut.

Soc. Quimica & Minera de Chile SA is expected to triple output in the coming years after signing an accord with the Chilean government in January. Morgan Stanley expects the price of the mineral used in phones, laptops and autos to peak this year just above $14,000 a ton, before declining to $7,700 by 2021.

“The projected dominance of lithium-ion batteries in the growing electric-vehicle market introduces a wide range of upside demand scenarios,” according to a BMI Research note dated March 14. Yet, “there remain considerable challenges ahead.”

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