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Li-Cycle’s share price gains on DOE loan news

Lithium battery producer Li-Cycle is set to build one of the USA’s first lithium battery recycling centres with the support of a $375m loan from the Department of Energy (DOE). The DOE also approved a loan to Redwood Materials, while Ecobat is to construct a new facility in Arizona.

- Li-Cycle has received conditional commitment for a DOE loan to fund a battery recycling plant.

- The US is looking to boost its domestic lithium production capacity to reduce reliance on China.

- WisdomTree Battery Solutions UCITS ETF holds US and Chinese producers.

The Li-Cycle [LICY] share price recently gained following news that the company will receive $375m to fund a recycling plant near Rochester, New York. The conditional loan is the latest that the US Department of Energy (DOE) has awarded to battery recycling companies to support the construction of new lithium battery recycling plants.

Lithium is a key component of electric vehicle (EV) batteries, which saw demand grow last year partly thanks to the Inflation Reduction Act. Efforts to meet demand come with steep environmental costs, and recycling lithium from used batteries is seen as an efficient way of boosting supply.

Li-Cycle’s share price has gained 23.9% year-to-date, though it is down 9.5% over the past 12 months. Li-Cycle’s shares gained 3.9% on 27 February, when the news was first announced.

Private firm Redwood Materials is another recent recipient of a DOE loan worth $2bn, which will fund a battery recycling plant near Reno, Nevada. The Redwood plant will produce cathode material and copper foil for lithium-ion batteries.

Ecobat also recently announced plans to construct a lithium-ion battery recycling plant in Casa Grande, Arizona.

First of its kind

According to a Li-Cycle press release, the Rochester plant will become “the first source of recycled battery-grade lithium in North America.”

While still subject to documentation and the satisfaction of extensive conditions outlined by the DOE, the conditional commitment for the DOE’s Loan Programs Office (LPO) to fund the Rochester plan was reached on 27 February. Li-Cycle expects to have met these conditions by the second quarter (Q2) of 2023, and for the Rochester Hub to start commissioning late in the year.

The Independent reported that the plant will have the capacity to produce enough batteries to power 203,000 EVs annually. According to Ajay Kochhar, co-founder, president and CEO of Li-Cycle, the loan is the first to have been approved by the LPO for a resource recovery facility, and will “further support [Li-Cycle’s] efforts to create a sustainable domestic supply chain of battery-grade materials in the U.S. and to grow American jobs”.

Lithium in the geopolitical crosshairs

The Li-Cycle and Redwood Materials loans demonstrate the eagerness of the US government to secure its own supply of lithium. China currently dominates global supplies, and fears exist that, with EV demand rising, the metal could become another battleground in the flaring trade war between the two superpowers.

Lithium carbonate prices more than doubled during 2022. The rise in prices accelerated near the end of the year as Chinese EV manufacturers scrambled to boost production ahead of the end of government EV subsidies on 1 January.

With these subsidies now ended, lithium prices could be reversing. Chinese battery maker Contemporary Amperex Technology Co. Limited (CATL) [300750.SZ] has priced in a halving of lithium carbonate prices this year, with Chinese EV demand having weakened in January. Goldman Sachs analysts believe that lithium supply will grow faster than demand between now and 2025.

However, a swathe of closures at production sites in Yichun, Jiangxi Province, over alleged environmental regulatory breaches threatens at least a temporary squeeze on global supply. Yichun produces 8% to 13% of the world’s lithium, and it is not currently known how long the closures, which began in late February, will last.

Funds in focus: WisdomTree Battery Solutions UCITS ETF

As of 3 March, Li-Cycle has a 1.98% weighting in the WisdomTree Battery Solutions UCITS ETF [VOLT.L], making it the fund’s 12th-largest holding. The fund’s largest holding is QuantumScape [QS] with a 4.41% holding, while China is represented in its top five with GEM’s [002340.SZ] 2.90% weighting in the fourth position. CATL also has a 1.51% weighting.

The fund is up 11% year-to-date, but has fallen 11.8% over the past 12 months.

Another fund offering exposure to Li-Cycle is the Rize Environmental Impact 100 UCITS ETF [LIFE.L], which holds the company at a weighting of 1.05% as of 3 March. The fund is up 10.5% year-to-date, and up 1.4% over the past 12 months.

Analysts polled by Refinitiv yielded a median 12-month price forecast of $9.00 for Li-Cycle, implying 52.5% gains on the stock’s 3 March closing price of $5.90.

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