While the future towards green energy is paved by the way of electric vehicles and lithium batteries, the market for lithium producers is not faring well despite the surging global demand for lithium itself – a key ingredient for the global pivot to decarbonization – as stock values for several lithium producers have taken the plunge this year.

Albemarle (ALB), an American-based mining company and the world’s largest lithium producer that’s part of the S&P 500, was down 22.43% Friday, closing at $168.21. Livent (LTHM), also American-based and in the process of merging with Australian mining company Allkem, was down 10.92% this year, closing at $17.70. Lithium Americas (LAC), a Canadian company, was down 5.86%, closing at $17.84

Comparatively, the overall market has been doing well as the S&P 500 rose to 12.52% at the close of Friday. Even the S&P’s Metals & Mining Select Industry Index, an industry specific index composed of 32 American companies, rose to 3.47%.

Lithium is a commodity that experiences volatile price springs – which directly affects the earnings of lithium producers. It is a vital metal used for lithium-ion batteries, which power electric vehicles and power storage systems that are critical for the global transition to green energy. Those same batteries are used for everyday household items like smartphones and laptops.

“The price of lithium can be very different over a period of months or even a period of days so the stock price (of lithium producers) moves constantly with the price of lithium, just like the stock price of an oil company moves constantly with the price of oil,” Pavel Molchanov, an analyst with Raymond James & Associates Inc., said.

In short, lithium producers adhere to the principles of supply and demand for lithium.

Lithium prices skyrocketed to over 600,000 Chinese Yuan per ton in November 2022 after earlier disruptions from the COVID-19 pandemic halted lithium mining projects – limiting the supply of lithium – while demand for products involving lithium, like electric vehicles, continued to soar amid the pandemic.

It was during this same time that stock prices for lithium producers rose in tandem with lithium prices, as shares of Albemarle hit up to $325.38, Livent at $33.62 and Lithium America hit $28.32.

“What happens when demand is high and supply is lagging behind? That is a recipe for prices to go up and in November 2022, when prices reached an all time high for lithium, there was genuine concern – could there be an actual shortage of lithium?” Molchanov said. There was no actual lithium shortage, he emphasized, but the fear “pushed prices excessively high. Once people found out there was no lithium shortage that’s why prices came down.”

The price of lithium has since cooled down to 178,500 Chinese Yuan per ton since demand for the commodity has cooled.

Seth Goldstein, an analyst with Morningstar, said he expects to see “a lot of volatility in the coming years” for lithium prices that will lead to “periods where demand is growing faster than supply and periods where supply will catch up with demand” for lithium producers.

In the wake of high lithium prices last year, Goldstein said the introduction of alternative supply sources of lithium this year, such as from lepidolite, as well as calls to design smaller-sized batteries for electric vehicles that use less lithium, have been some reasons for lower lithium prices this year.

Still, Molchanov said global demand for lithium “is constantly growing.” According to the World Economic Forum, world demand for lithium is expected to rise to 3 million metric tons by 2030 from the 540,000 metric tons produced in 2021.

Joseph L. Shaefer, a portfolio manager with Stanford Wealth Management, sees hope in the valuation of lithium producers despite the current low prices of lithium that hampers the earnings of mining companies.

Writing in Seeking Alpha, Shaefer said he expects a “supply/demand balance” in the future to tilt in favor of a tightened  supply of lithium – possibly through protestors or regulators actions to halt mining operations – which would lead to higher prices for lithium producers’ shares due to continued lithium demand.

For his part, Shaefer wrote that he holds shares for various lithium producers, like Albemarle, Livent and Lithium Americas and will continue to hold onto those shares as the lithium mining industry will recover and eventually “earnings will increase or explode.”