Albermarle is currently the world leader in the lithium market. However, the American company has to contend with a tenacious competitor who will sooner or later try to wrest this title from it.
Sociedad Quimica Minera de Chile (SQM) has the great advantage that its home country, Chile, has the largest known reserves of lithium in the world. Because the company has close contacts with its own government, it is in an excellent position to exploit the most coveted deposits itself.
Back in 2018, it agreed with the Chilean government to significantly increase lithium production by 2025. While around 60,000 tonnes of lithium are currently produced each year, this figure is set to rise to 216,000 tonnes by 2025.
As with Albermarle, the lithium business is not Sociedad Quimica Minera de Chile's largest division. It currently accounts for around 19% of the company's sales. Fertiliser production is currently even more important. However, given the expected increase in lithium production, this ratio could change significantly in the coming years.
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In order to develop its own production, the company is currently investing in a whole series of promising projects. The company is not only active in Chile. For example, they are planning a lithium refinery in Kemerton, Australia, in the immediate vicinity of a production plant run by their competitor Albermarle.
SQM's share price has risen by almost 70% in the last 12 months. Analysts have consistently raised their price targets since September last year. However, the average price target is currently slightly below the current share price. As a result, out of 14 price watchers, only four are in favour of buying SQM shares. Seven analysts give the stock a neutral rating.
Forecasts assume steady growth in sales and profits over the next three years. If demand for lithium increases as forecast, SQM's business should receive a significant boost. The company will also benefit from the fact that fertiliser prices have also risen significantly recently.
Buy lithium shares: the best lithium shares 2021
Lithium is of vital importance to the development of electromobility. Increasing production figures for electric vehicles are driving a steady growth in demand for this white raw material. Investors in lithium shares can benefit from this trend. But what are the best lithium shares?
Demand for lithium has risen sharply in recent years. Modern lithium-ion batteries are a fundamental component of smartphones, tablets and various other electronic devices. Batteries are also an indispensable component of electric vehicles.
While the production of electric cars has played only a minor role in the past, a fundamental change in mobility is emerging. Experts expect sales figures for electric cars to rise considerably in the coming years. As a result, demand for lithium will also rise sharply in the medium and long term.
In fact, industry experts currently assume that demand for lithium will outstrip supply by 2030. Current projects and those already planned will therefore only be able to cover growing demand until 2025. After that, new sources will have to be developed. For lithium producers, this is a lucrative business.
Is it wise to invest in lithium shares?
As long as lithium is needed to produce modern rechargeable batteries, there is no foreseeable end to demand for this white gold. Given the circumstances outlined above, there is also a high probability that the price of lithium will rise in the years ahead. It is therefore more attractive to buy lithium shares.
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At the same time, however, investors need to be aware that even with a commodity as sought-after as lithium, considerable price fluctuations need to be taken into account. If production is ramped up too quickly in response to the expected increase in demand, this could well lead to a fall in prices. This has recently been the case in 2019 and 2020. As a result, the various lithium stocks have also performed comparatively poorly.
However, given the current likely triumph of the electric car, the long-term outlook for the lithium market appears to be extremely positive, apart from temporary fluctuations. But what options are available to interested investors?
The best lithium stocks 1: Albermarle Corporation
If you want to buy lithium shares, it's best to look at the big companies. They have the most experience and also the capital reserves to continue developing their market position. In the search for the best lithium shares, the natural place to look is the world leader in the lithium market: Albermarle.
Albermarle Corporation (ISIN: US0126531013) has risen to become the world's largest producer of lithium and lithium compounds following the acquisition of Rockwood in 2015. It is estimated that a third of the entire global lithium market is now under the control of the US company.
Nevertheless, the lithium business accounted for just 37% of the Group's total sales in 2020. What, at first glance, seems to be an argument against Albermale has, however, proved to be a decisive strength in recent years. Indeed, the chemical group's other segments, such as flame retardants and surface treatment chemicals, have been among the driving forces in recent years, when the price of lithium has fallen sharply.
What's more, the Albermarle share not only promises strong growth in the years ahead. Over the past 27 years, the company has continually increased its dividend. Investors who buy Albermarle shares also get an aristocratic dividend in their portfolio. Albermarle has already proved on several occasions that it can defy crises.
The share price has risen by 128% in the last 12 months. With a P/E ratio of over 60, the stock should not necessarily be considered cheap at present. Nevertheless, the majority of analysts currently recommend buying Albermarle shares. Over the next few years, experts are forecasting a significant increase in sales and profits.
