The lithium industry has been a difficult place to invest in recent times.
Weak demand has caused a surplus of the battery ingredient, which has weighed heavily on the profitability of lithium miners.
Although this is disappointing, there's a silver lining on this dark cloud.
That silver lining is that the team at Bell Potter thinks it has created a buying opportunity for investors and is tipping one ASX 200 lithium stock to rocket from current levels.
Which ASX 200 lithium stock?
The ASX 200 lithium stock in question is industry giant Arcadium Lithium (ASX: LTM).
It notes that the lithium miner recently held its investor day event, which highlighted its huge production growth potential. It said:
LTM's Investor Day focused on the diversified and vertically integrated nature of its tier-one asset portfolio and the company's enormous expansion potential. Production and capital cost outlooks were provided, along with illustrative financials under consensus pricing which point to Adjusted EBITDA growing from US$525m in 2025 to US$1.3b by 2028.
Importantly, Bell Potter points out that Arcadium Lithium believes that a market deficit is coming by 2027 as demand grows. It adds:
The company's lithium market analysis points to demand growing from 1.2Mtpa LCE in 2024 to 2.3Mtpa LCE by 2027 and 3.5Mtpa by 2030, a 21% CAGR. The supply outlook, even including aggressive production growth from China and Africa, sees market deficits of 0.3Mtpa by 2027 and 0.7Mtpa by 2030.
If this proves accurate, then prices could be destined to rebound strongly in the coming years as lithium demand outstrips supply.
Big return potential
According to the note, the broker has retained its buy rating on the ASX 200 lithium stock with a trimmed price target of $6.25 (from $7.25).
Based on its current share price of $3.69, this implies potential upside of approximately 70% for investors over the next 12 months.
Bell Potter believes that investors should be snapping up the lithium miner's shares before the lithium market rebounds. It concludes:
LTM is a large and diversified exposure to lithium in terms of mode of production, asset location, downstream processing and end markets. While lithium markets are currently depressed, we expect lithium commodity pricing to improve over the medium to long term with demand growth out-stripping new supply. LTM's asset base is readily expandable into strengthening markets and the company has a strong balance sheet to support this growth. LTM is trading at a material discount to its depreciated asset base.
