Why has the Lithium Power (ASX:LPI) share price rocketed 50% in a week?

Another day on the green for the lithium pure-play.

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The Lithium Power International Ltd (ASX: LPI) share price is soaring around 10% in this afternoon’s session and now trades at 45 cents a piece after hitting an intraday high of 48.5 cents.

Lithium Power shares have been on the upward trajectory for over a week now, having come off a low of 28 cents on 8 August.

Whilst there’s no market-sensitive information out of the lithium pure-player’s corner today, it’s worthwhile investigating what’s fuelling this latest run on its share price.

Lithium pricing fetches record highs once again

Lithium is currently fetching US$28,359.68/tonne after breaking out in early August from previous lows of US$14,414.

Since that time, it has zoomed ahead more than 96%, breaking away once again on 8 October and gaining a further 3% on today’s level.

In fact, the new-age battery element is commanding its highest prices on record in October. This reflects supply constraints and the demand for stable battery materials, driving the spot price and premium on lithium futures contracts towards the ceiling.

Further, the outlook for the lithium-ion battery market – the key catalyst in propelling lithium prices – is overwhelmingly bullish. This is likely driving Lithium Power’s share price as well.

For instance, the lithium-ion battery market is projected to grow at a compound annual growth rate (CAGR) of 14.6% over the coming five years, reaching a total market size of US$96 billion by 2026.

That’s more than double its current estimated size of around US$41 billion in 2021. Not surprisingly, this bodes well for the Lithium Power share price.

Why is this relevant to the company and investors? Perhaps most relevant is the fact that Lithium Power International is a lithium pure-play, meaning it derives the entirety of its revenue from lithium sales.

As it is an ASX resources share that produces a single commodity, it is considered a price-taker of whatever the market is offering on its product.

As such, the company’s share price can and does fluctuate almost in unison with the spot price of lithium, as has been the case in recent weeks.

Not to mention Lithium Power provided an update last month that confirmed a 90% increase in the mineral resource estimate at its Maricunga lithium-brine project in Chile.

The pricing mechanism of the share market involves a culmination of past earnings history and future earnings expectations.

If lithium pricing looks bright on the horizon then the market, being relatively efficient, will be quick to price this sentiment into the company’s shares.

In light of this relationship, and especially given the strengths in lithium prices of late, the picture starts to form as to what’s driving the company’s share price lately.

Investors appear to be speculating on the upward movement of lithium pricing or hedging against significant price swings in the silver-white metal. Purchasing lithium shares is a good way to get in on the action without having to buy risky derivatives contracts that involve the use of leverage and significant capital.

Lithium Power International share price snapshot

The Lithium Power share price has been an outsized winner this year to date, posting a return of 111% since January 1.

This extends its gains over the last 12 months to 138.5%, which is a galaxy away from the S&P/ASX 200 Index (ASX XJO)’s gain of around 19% in that time.

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The author Zach Bristow has no positions at any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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