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Is the lithium boom charging up for a second surge?

As all roads lead to Rome, all mining investors look to China. This is perhaps even more so for battery-making mineral lithium and the miners rushing to supply the boom in electrified vehicles.

China is arguably the single biggest variable in the lithium boom with Japanese broker Nomura reporting a 480% surge in China’s shipment of electric cars to 38,470 in the month of January from the year before, according to an article in the Australian Financial Review.

It’s easy to understand why China is leading the charge in the vehicle electrification race (all puns intended) given its severe pollution problems and the government’s razor focus on addressing this issue.

The ugly truth for democracy believers is that the central authoritarian Asian regime is better placed than other major economies to save the environment. Just look at the fiasco in Australia over emissions trading and the like!

This should give supporters of lithium miners Orocobre Limited (ASX: ORE), Pilbara Minerals Ltd (ASX: PLS) and Galaxy Resources Limited (ASX: GXY) a big smile as the drive towards battery-powered vehicles is unlikely to sputter when it’s driven by doctrine than free flowing markets.

The problem is that this grand macro-theme won’t give many clues on how far the price of lithium can fall after its huge run from around US$2000 per tonne in 2002 to peak at over US$12,000 a tonne in January this year.

Since then, the price of the mineral has tumbled 20% or so and experts are divided on where the price will swing to from here.

As the saying goes – nothing cures high prices like high prices. The extraordinary surge in the price of the mineral has seen a rush of new players come into the market, which is putting downward pressure on the mineral.

The way for investors to play this game is to stick to the lowest cost producers although chasing the electric vehicle boom through lithium mining stocks may not be the smartest or best way to ride this wave.

The fact is, electric vehicles require lots of copper, and the red metal is used in a very wide range of industries.

The outlook for copper is pretty upbeat and any additional upside in demand from the electric vehicle industry is cream on the cake.

This means it could be better to buy shares in the likes of copper producer Oz Minerals Limited (ASX: OZL). For even better diversification, BHP Billiton Limited (ASX: BHP) looks like a very attractive option – particularly given the recent sell-off in the stock.

There’s another sector that is also facing a multi-year boom. The experts at the Motley Fool are particularly bullish about the outlook for this sector as they believe it will make a big impact on markets – just as electric vehicles have.

Click on the link below to claim your free report on this sector and to find out what stocks are best placed to ride this next boom.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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