The third best performing exchange-traded fund tracking material producers got a jolt from China after the country said it will set a deadline for car makers to end sales of fossil-fuel vehicles.
Global X Lithium & Battery Tech ETF climbed as much as 5.1% on Monday to US$36.09, the highest in more than six years, as its biggest holdings FMC, Soc Quimica & Minera de Chile, Samsung SDI and Tesla rallied.
On Saturday, Xin Guobin, China’s vice minister of industry and IT, said the government is working with regulators on a timetable to end production and sales of internal combustion vehicles. The shift to electric vehicles is spurring a surge in demand for lithium batteries and the companies that supply the raw materials.
Last week, investors poured $41m into Global X Lithium, which trades under the ticker LIT, putting it on course for a sixth straight monthly inflow. The exchange traded fund, which delivered a 41% return this year, more than tripled its assets to $441m, according to data compiled by Bloomberg.
“The growth of the electric vehicle market has just completely changed the entire equation for lithium,” Jay Jacobs, the New York-based director of research at Global X Funds, said in a telephone interview. “If China is going electric and other automobile manufacturers and countries are following suit, this is just going to be an electric vehicle world going forward.”
Supply of lithium will remain tight this year through to early 2018, Citigroup analysts said last month, as they raised their price estimate on lithium carbonate equivalent for next year by 24% to US$14 000/ton.
In July, the UK said it will ban sales of diesel- and petrol-fuelled cars by 2040, two weeks after France announced a similar plan to reduce air pollution. Norway and the Netherlands are considering a more aggressive way to put an end to fossil-fuel cars years earlier than its European peers.
China’s decision to set a deadline for the shift away from fossil-fuel vehicles will add more pressure on long-term lithium supply, Simon Moores, MD of industry consultant Benchmark Mineral Intelligence, said in an e-mail.
The Asian nation can effectively produce 90 000 tons of lithium chemicals from spodumene concentrate supplied from Australia, enough for just over two million vehicles based on a 50kWh average battery pack, he said. China has 300m registered vehicle users, Moores said.
“The ensuing boost in demand” for electric vehicles would benefit FMC and Albemarle, the world’s largest supplier of lithium for electric batteries, Mike Harrison, a senior analyst at Seaport Global Securities, said in a note on Monday. Albemarle is Global X Lithium’s sixth largest holding, according to the latest filing compiled by Bloomberg. — Reported by Luzi Ann Javier, with assistance from Jack Kaskey, David Stringer and Yan Zhang, (c) 2017 Bloomberg LP