In the share market you have to take every break you can get. And investors in some of the S&P/ ASX200’s (ASX: XJO) best lithium miners caught a break this week on the back of civil unrest in Chile.
According to news reports protestors have blocked access to some of the world’s highest producing lithium mines operated by lithium giants SQM and Albermale Inc.
Reuters even reporting that some of the mines are “completely shutdown”.
Any hint that the supply side in lithium out of Chile might be hit is likely to support over-the-counter or off-take lithium prices for local miners.
This week shares in the likes of Galaxy Australia Ltd (ASX: GXY), Orocobre Ltd (ASX: ORE), Pilbara Minerals Ltd (ASX: PLS) and Mineral Resources Limited (ASX: MIN) all climbed in response to the news. Notably though many of these miners are only rebounding from 52-week lows to show the risks around speculating on lithium price action.
Lithium stocks are volatile as the commodity’s pricing is still opaque with no exchange traded futures market to estimate forward pricing.
Another factor perhaps buoying the stocks is last week’s strong operating report from electric vehicle giant Tesla Inc.
It reported strong demand for electric vehicles and revealed its Shanghai Gigafactoy is ahead of schedule with Model 3’s about to hit the assembly line.
Should you buy?
I’m not a buyer of lithium shares myself, as I expect you can make far better risk adjusted returns elsewhere.
For example to profit on lithium stocks you need to buy them near the bottom of the cycle before hoping they head higher and selling near the top. Straight away we can see the odds on successfully timing the market like this are between 1 in 2 and 1 in 4 or more.
Lithium bulls will claim the stocks will soar over the long term on the back of rising pricing, but the evidence so far suggests otherwise.
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which don’t have the direct risks of the drought.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool's parent company owns shares in and recommends Tesla inc. 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.