Ambition is a difficult thing to balance with expectations, and luck changes so quickly. After a blockbuster year in 2020 for lithium shares on the ASX, 2021 got off to a rocky start. The January blues kicked in and shares looked a little directionless. It seems that there was plenty to be optimistic about, and investors were waiting for the catalyst. 

Spring Forward

A few things have made April a great month for ASX lithium shares, with prices about 5% to 10% higher and within 20% of all-time highs. The beginning of 2021 was a little dull for lithium miners, but between Joe Biden’s new position on climate change, higher lithium prices, and even a surging Tesla share price, there was enough messaging that lithium miners will be chugging along in the coming months. 

Most of the excitement comes from the electrification trend that is being accelerated by electric vehicles and battery makers, but the ASX lithium listings have a second tailwind going for them. The Australian government’s new roadmap lays out a special place in the plan for energy and resources, making sure that miners have the capital and regulatory support to expand and advance. 

The March announcement was welcome news for the whole industry, but miners like Galaxy Resources have done particularly well since this announcement and a few of their own. 

Winning

Since their March 25th news that piloting and testwork at their Sal de Vida Project in Argentina have improved its flowsheet for producing battery-grade lithium carbonate through the addition of a simple process, shares have risen 28%. Recent test results that incorporated those minor enhancements to the flowsheet have returned 99.83% purity, and the company is pushing for more positive test results on all of its projects. 

This outstanding development achievement is unique to conventional evaporation processes. Galaxy CEO Simon Hay had some confident words about the combination of tailwinds pushing the company and share price along: “Galaxy remains on track to execute and deliver a highly competitive, low-cost project to the market in time for the forecast lithium demand surge.”

Favourable Conditions

Lithium companies have been buoyed by a strong lithium price that has continued to push higher in March driven by a general demand increase. According to Fastmarkets:

• Asian seaborne lithium prices were steady against a backdrop of tight availability and firm demand.  Meanwhile, Chinese suppliers have made aggressive offers for battery-grade lithium carbonate. 
• Spot trades in domestic Chinese market remained slow with consumers conducting “hand-to-mouth” purchases, but supply continued to be tight. 
• Europe, US battery-grade lithium spot prices continued to trend higher with deals reported at higher levels.

As long as this trend continues, there will be good support for further buying and investment in the space for some time. It’s unclear whether and when this trend will run out, although price stabilization is eventually inevitable in the distant future.

Losers and Winners

Galaxy Resources and other Australian lithium miners on the ASX like Pilbara Minerals and Orocobre Limited will continue to benefit from the positive mining and industry environment, but headwinds remain. The Global X Lithium and Battery ETF fell more than 25% between February 17th and March 25th. The ETF invests in companies along the complete lithium cycle from mining to refining, and even battery production. 

The broad exposure of the ETF and its recent drop has shown that although future trends have put all the companies in the fund in the right position, not everyone will win at the same time. The competition to grab as much market share as possible will produce more losers than winners and choosing the right miners and producers that partner with them in battery production or energy storage will be the key to a strong lithium portfolio. 

For now, lithium mining companies on the ASX can expect to find strong support from both the government and investors, as favourable regulatory, financial, and broader economic conditions push capital into the mining and resources sector this year. 

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.