While lithium producers continue to face historically low lithium prices and rising production costs, cautious optimism seems to be in the air this week. This is evidenced by a nearly 3.5% jump in the price of the Global Lithium & Battery Tech ETF (LIT) over the past five sessions.
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It is not just LIT; shares of top lithium producers Albemarle (NYSE:ALB) and SQM (NYSE:SQM) have also rallied by around 6% and 3%, respectively, during this period.
Optimism in the Air
The reason for the optimism lies in hopes of a recovery in global demand for electric vehicles. This week, several major automotive companies reported their sales figures. While Tesla (NASDAQ:TSLA) experienced a single-digit decline in its Q2 vehicle deliveries, the figure still exceeded expectations. As a result, the EV maker’s shares have rallied by around 22% over the past five sessions.
Moreover, Ford (NYSE:F) reported a 61% growth in its Q2 EV sales. Similarly, Chinese EV major NIO (NYSE:NIO) (HK:9866) witnessed a massive 98% growth in its vehicle deliveries for June. The sales figures have raised hopes that demand for EVs may be picking up pace. Expectations of a rate cut in the U.S. are another driver for optimism as lower rates could boost consumers’ purchasing power.
Additionally, the upswing in Tesla’s share price is providing another boost for LIT, as TSLA is the second-largest holding in the ETF with a 6.4% weighting. In the long run, however, the demand-supply scenario will be a crucial factor in determining any sustained upswing in the price of lithium itself.
What Is the Outlook for LIT?
Meanwhile, the TipRanks Technical Analysis tool is flashing a Sell signal for LIT on a monthly timeframe. This indicates that caution may be warranted before initiating any new long positions in the ETF.
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